Getting Mortgage Ready: General Criteria for Homebuyers

Buying a home is a significant milestone in one’s life, and for many, it’s a dream come true. However, the path to homeownership can be a complex and daunting one, especially when it comes to securing a mortgage. To make your journey smoother and increase your chances of getting approved for a mortgage, you need to be well-prepared and meet certain criteria. In this guide, we’ll explore the general criteria lenders consider and provide you with some valuable tips to help you become mortgage-ready.

Proven Repayment Ability: One of the fundamental requirements for obtaining a mortgage is demonstrating your ability to repay the loan. Lenders want to see evidence of your financial responsibility.

This includes:

Rent Payments: If you’re currently renting a property, providing a record of consistent and on-time rent payments can bolster your case.

Savings: A healthy savings account shows that you are financially disciplined and can cover unexpected expenses.

Loan Repayments: If you have other loans, such as car loans or personal loans that are due to end soon, making regular payments on time reflects positively on your financial stability.

2. Stress Testing: Lenders often use stress tests to assess your ability to handle potential increases in interest rates. They want to ensure that you can still afford your mortgage payments if interest rates rise. Be prepared for this scrutiny, and make sure your finances can withstand higher rates.
3. Sustainable Earnings: Steady and sustainable income is crucial for mortgage approval. Lenders typically require: PAYE (Pay As You Earn): For employees, providing a salary certificate, confirmation from the tax authorities (e.g., EDS/Revenue), and recent payslips is essential. Self-Employed: If you’re self-employed, be ready to provide the last 2-3 years of Revenue Form 11s and Chapter 4 confirmations, trading accounts, and tax clearance certificates (both business and personal).
4. Credit History: Your credit history plays a significant role in mortgage approval. Lenders will assess your credit score and history to determine your creditworthiness. Ensure you have a good credit score by paying bills on time and managing your credit responsibly.
5. Security Location/Type: The property you intend to purchase can affect your mortgage terms. Lenders may have preferences for certain locations or types of properties. Be aware of this and research how your property choice aligns with your lender’s criteria.
6. CBI Exception Availability: Central Bank of Ireland (CBI) regulations impose limits on loan-to-income (LTI) and loan-to-value (LTV) ratios. However, exceptions are available in certain cases, allowing lenders to exceed these limits. Discuss the availability of CBI exceptions with potential lenders if your circumstances warrant it.

Loan-to-Income Limits (LTI)

First-time buyers can typically borrow up to four times their combined salary, but exemptions are available. These exemptions can increase the limit to 4.5 times your joint income.

Loan-to-Value Limits (LTV)

A 10% deposit is usually required for first and second-time buyers. However, the Revenue’s Help to Buy scheme can reduce this requirement for newly built properties.

In conclusion, preparing to secure a mortgage involves meeting specific criteria and providing essential documentation. By demonstrating your financial responsibility, maintaining a good credit history, and choosing the right lender, you can increase your chances of obtaining the keys to your dream home. Remember, the journey to homeownership may have its challenges, but with proper preparation, it can be an achievable and rewarding experience.

Who Do I Borrow From?
When it comes to choosing a lender, you have several options. Different lenders offer various rates, promotions, and terms, so it’s essential to compare them carefully. Consider factors like: Interest Rates: Look for competitive rates, and be aware of any promotional offers, such as cashback incentives. Some lenders offer overpayment options whilst on a fixed rate which can be of significant benefit if you are in a position to made additional repayments to your mortgage over time.

Minimum Requirements: Different lenders may have varied requirements, such as a minimum time in employment or specific visa requirements. Choose a lender whose criteria align with your situation.

What Documents Do I Need?

To apply for a mortgage, you’ll need to provide various documents. These include:

Income Documents: Depending on your employment status, these may include salary certificates, Revenue confirmations, payslips, Form 11s, trading accounts, and tax clearance certificates.

Financial Documents: Bank statements for your current and savings accounts, credit card statements, and records of any existing loans or mortgages.

Identity Documents: A valid passport or driver’s license and a recent utility bill or bank statement with your correct address.

Before making an offer on a property, you’ll need to obtain formal Approval in Principle (AIP) from a lender. AIP confirms that you are pre-approved for a mortgage, which is a crucial step in the homebuying process. Your AIP typically remains valid for 6 to 12 months.

Top 5 Tips for Obtaining a Mortgage

1. Secure AIP Before House Hunting: Get pre-approved for a mortgage before you start looking for a property. It will give you a clear budget and make your offers more attractive to sellers.
2. Demonstrate Financial Responsibility: Maintain a track record of saving money and paying rent and existing loans on time over a 6-month period.
3. Manage Your Finances Well: Avoid late payments and manage your accounts wisely, as your credit history is essential.
4. Stable Employment: If possible, avoid changing jobs during the mortgage application process to demonstrate stability to lenders.
5. Be Proactive: Once you have mortgage approval, engage directly with estate agents and don’t rely solely on online property searches to find your dream home

In summary, securing a mortgage is a significant step towards homeownership, but it comes with certain criteria and requirements that you must meet. To increase your chances of success, you need to demonstrate a proven ability to repay, have sustainable earnings, maintain a good credit history, and consider the location and type of property. Central Bank of Ireland exceptions can be valuable in some cases. Additionally, understanding loan-to-income and loan-to-value limits is crucial.

When choosing a lender, compare options based on interest rates, promotional offers, and minimum requirements. Prepare the necessary documents, including income, financial, and identity documents. Obtaining formal Approval in Principle (AIP) from a lender is a crucial early step in the process, providing you with a clear budget for house hunting.

Top tips for obtaining a mortgage include securing AIP before house hunting, demonstrating financial responsibility, managing your finances well, maintaining stable employment, and being proactive in your property search.

Lastly, consider the advantages of using a mortgage broker. As Joe Flanagan, Business Development Manager at Irish Mortgage Corporation, advises: “Mortgage brokers can be invaluable resources for homebuyers. They have access to a wide range of lenders, often including those you may not find on your own. This access allows them to shop around for the best rates and terms on your behalf, potentially saving you both time and money. Additionally, brokers have a deep understanding of the mortgage market and can provide expert guidance tailored to your specific financial situation. They can help you navigate the complexities of mortgage applications and ensure you’re well-prepared, increasing your chances of securing a mortgage.”

Incorporating the guidance of a mortgage broker can greatly simplify your journey to homeownership and help you find the right mortgage for your needs.

For more information, please contact us.