POTENTIAL home-buyers tend to focus mainly on the deposit when getting ready to apply for a mortgage. It is very important but it is by no means the only area that the bank will look at when assessing your application, writes Grainne McGuinness.
Having a good income is also no guarantee of success, as lenders are interested in seeing the amount of disposable income you have left at the end of the month instead of just looking at what’s coming in. If 2017 is the year you are hoping to get on the property market, it is well worth spending the next few months getting your finances ready. Every step you take in the right direction will make it easier for your lender to say yes.
The first thing to do is to make your finances as clear and easy to read as possible. You want your bank to be able to see at a glance that you can easily manage the mortgage repayments. To do this they need to see clear evidence of both whatever rent you are paying plus additional savings. If you pay your landlord in cash or are giving money at home, change this so the payment is clearly visible on your bank account for at least six months.
If your savings have been ad hoc, regularise them. Try to save the same amount each month rather than in odd amounts and times. Remember, your aim is to show the bank that you will have this money ready to go each month. Don’t dip into your savings; there is no point saving €500 a month if you take funds back out for Christmas or a holiday; budget for these things separately or do without for the months running up to your application.
During this period, try to clear as much of your other debt as possible. Ideally your mortgage would be the only major repayment you have. If you have a car loan or other personal debt, consider accelerating your repayments to clear it ahead of your mortgage debt. This may not make good sense if it means cutting into your deposit. If you can manage the loan instalments and show clear repayment capacity for the mortgage it should be fine. Make sure all your loans are in order; even a single missed payment will raise a red flag with lenders.
If you have a credit card it is even more important to clear it. Credit card interest rates are higher than almost any other form of credit; clear what is owed in full. Not only does a leftover balance cost you, it is a sign you are not fully on top of your finances. Don’t make cash advances on your credit card; another signal of unplanned spending.
In general, try and live well within your means for the 6-12 months before a mortgage application. Stay away from online gambling. Even if it is only for an occasional bet, online betting accounts make lenders nervous, so better to avoid entirely. Make sure you always have money in your account to meet direct debits — even a single unpaid debit or referral fee will affect your chances.
It’s not all about the outgoings; obviously the bank will also be taking a good look at your sources of income. If you are on a short-term contract, or still in the probationary period in a new job you may have difficulty getting a mortgage sanction. Make the case with your employers for a longer contract or permanency.
If you are self-employed make sure your accounts are in good order. Banks look for 2-3 years of audited accounts and will also want confirmation of your tax position from an accountant.
If you have had any difficulty in the past it is worth checking your credit rating with the ICB. You are entitled to receive a full copy of any data, which is held in your respect on ICB’s Database. The cost is €6 per application and you can request a copy by calling 01 2600388 or completing an online form at www.icb.ie. If there are any errors you can have them corrected by contacting the lender involved. If you are having difficulty resolving a dispute you can make a formal complaint and refer the matter to the Office of the Data Protection Commissioner. There may be black marks on your record that you can’t change but at least you are forewarned and can have explanations ready.
DEAL OF THE WEEK
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