Updated: Jan 31
Getting a mortgage can be daunting task but also be one of the most rewarding life goals to achieve. Like anything in life that's worth doing it doesn't come easy. The discipline to save for years and then the effort required to find a dream home is not to be underestimated.
I spent 5 years of my career working in a well known Irish bank. I met hundreds of first time buyers. I will share my knowledge and experience on the common pitfalls I observed that blocked people getting the mortgage they needed.
Mistake 1: Know your limits
They didn't know how much they could borrow or they had a house in mind that's out of reach. Central bank rules allow you to borrow up to 3.5 times your combined annual household income. So if you earn €50000 (average industrial wage for full time workers) x 3.5 = €175000 is your max for a single person and €350,000 per couple.
Mistake 2 - Deposit not ready
To buy your new home, you need to have at least 10% of the purchase price in the form of a deposit. You can raise the finance through whatever means are available to you, usually saving over time. Saving also helps demonstrate your solid financial history to any potential lenders.
Mistake 3: Poor current account management
A lender wants to see clean working accounts (credit cards, current accounts and savings) for at least 6 months. What does that mean? It means no or low missed payments or missed direct debits, no risky transactions like gambling accounts or excessive shopping that may suggest you will be a higher risk of failing to repay your loan in the future.
Mistake 4: No up to date documentation
To support your mortgage application, you will need to provide the following documentation and possibly multiple times depending on how long it takes to find your home. Stay organised.
A current P60
A completed salary certificate from your employer detailing basic and variable pay
3 recent payslips
Self-employed people will need to show a completed Form 11/Chapter 4 and tax clearance certificate
Mistake 5: Can't show a strong ability to repay
Your ability to pay your mortgage is one of the most fundamental factors that any lender will look at. Over a period of 6 months, you should seek to create a paper trail which will prove your ability to repay your loan. This includes evidence of regular saving, keeping on top of your rent payments or existing mortgage repayments, and an ability to pay off any outstanding loans you may have.
Mistake 6: Don't shop around the varies banks
When looking for a mortgage, it’s worth investigating different lenders other than the bank you’re already with. You do not have to have a bank account or be a regular customer of any bank to apply for a mortgage as it is viewed as a separate financial product. Typically, lenders will consider the following:
Your guaranteed and variable income
Your age, and the maximum term of a mortgage available to you
Your outgoings, including other loans and financial commitments
Your other living expenses
Mistake 7: Patience is a virtue
First time buyers especially in todays market will need a high degree of patience. Finding a dream home is lengthy even in normal times. With Covid 19 restrictions on viewing and a shortage of supply in the market it may take longer than normal - (8 -12 weeks average). Don't rush into purchasing until you're fully happy with the home. You'll likely lose one or two along the way but persevere, were there's a will there is a way.
* This is not financial advice but my own views based on my experience in the industry. If you want advice I recommend you talk to a qualified advisor.