How to prepare to apply for a mortgage?

indigo twist

I'm just curious. My boyfriend and I - both 30ish - currently rent. We're both in pretty secure permanent jobs.

If we were to apply for a mortgage in maybe 3-5 years - most likely with AIB - what should we being doing now to increase our chances? We have a current account, but no real savings. I guess the first step is to open a savings account - even though we can afford to put very little into it. Also, I've heard that it looks good for your credit history if you have a loan - there's nothing we specifically need a loan for right now, and it seems insane to be paying interest for nothing! But would it look bad in a few years if we have no history of making repayments on a loan?

Anything else we should be doing now in preparation? We won't be buying in the next couple of years, but I'm thinking long-term.

Also, if we were to be given a gift to cover the deposit, would this affect our chances of getting the mortgage? I.e. if we had no real savings, but had the deposit. Whatever the repayments would be would probably end up a lot less than we're paying in rent now, so it's not a question of not being able to afford the repayments. (It's kind of ironic - if we had a mortgage rather than paying rent, we could afford to save - BUT - it's hard to get a mortgage without savings!)

Finally, would a married couple have more chance of getting a mortgage than a cohabiting couple?

Thanks for any advice!

amdublin

Don't get a loan if you don't need a loan. You do not need to display a credit history - did you see that on an American website??

Open a savings account and save your deposit. Why are you getting a gift and not saving your deposit? It will look better that you saved.

MouseTail

No need for a loan, but there is a need for savings, regardless of whether you have a gift.
The key is consistency, no putting €500 in this month, only to withdraw €200 of it next month.
Have a record of rent paid either to LL or parents. Keep the account clean. No bounced direct debits, dodgy transfers to betting sites etc.
No,difference if you are married or cohabiting.

CIARAN_BOYLE

You need savings if a gift gives you a larger deposit and reduces your ltv great but you need your own savings to get a mortgage.

indigo twist

amdublin wrote: »

Open a savings account and save your deposit. Why are you getting a gift and not saving your deposit? It will look better that you saved.

The fact is that at the moment we don't have room in our budget for savings (we have a baby, creche fees are insane!) We are expecting a rent increase shortly, and market rent in our area is 1,400-1,500 for a three bed house like ours. Due to our workplace locations, we're very limited in locations that suit, so moving to a different area isn't really an option. Basically of course we'd save if we could, but it's looking unlikely for the next few years. On the other hand, it's quite likely I could be given the deposit, so if a mortgage was possible, I'd hope that it would cost a few hundred less than we're currently paying in rent each month. And then we could start to save. That's what I meant by the irony of it ... No mortgage without savings, but impossible to save while renting.

D3PO

yep as mentioned by others savings by are a key one. I know its tough but if you want to buy you will realise it aint easy.

One way of possibly reducing your outgoings is to look at your rental location. Your a couple with 1 child by the sounds of it, maybe look to downgrade to a 2 bedroom property ?

Re location if your paying 1,400 - 1,500 for a 3 bed its fair to assume your in Dublin. If thats the case then you are in no way limited by locations that suit.

Your going to need to make some sacrafices to buy it would seem, that may be compramising on your accomadation, spending a little less time with your child doing overtime etc etc.

Derek Zoolander

indigo twist wrote: »

The fact is that at the moment we don't have room in our budget for savings (we have a baby, creche fees are insane!) We are expecting a rent increase shortly, and market rent in our area is 1,400-1,500 for a three bed house like ours. Due to our workplace locations, we're very limited in locations that suit, so moving to a different area isn't really an option. Basically of course we'd save if we could, but it's looking unlikely for the next few years. On the other hand, it's quite likely I could be given the deposit, so if a mortgage was possible, I'd hope that it would cost a few hundred less than we're currently paying in rent each month. And then we could start to save. That's what I meant by the irony of it ... No mortgage without savings, but impossible to save while renting.

This is exactly the conclusion that the bank will come to - if you're not saving they will normalise the amount they are willing to lend against your current rent - the overheads that a house would typically accrue. If you can't demonstrate savings beyond rent then the expectation should be that the maximum the bank would lend (in terms of monthly repayments) will be slightly less than the rent you're paying.

D3PO

indigo twist wrote: »

The fact is that at the moment we don't have room in our budget for savings (we have a baby, creche fees are insane!) We are expecting a rent increase shortly, and market rent in our area is 1,400-1,500 for a three bed house like ours. .

OP Im not casting judgement here but maybe you need to seriously rethink if its financially smart for you to both be working.

I dont know the full details but given

• creche fees,
• cost of commute to work and all other associated costs,
• the fact that you or your partner could transfer all tax credits to the other which could be tax efficent if one of you is in the higher tax bracket
• the fact one of you working makes accomadation location less of an issue for you and therefore allowing you potentially find cheaper accomadation elsewhere

there are very few details you have provided but based on them there is a reasonable assumption that this is something you should at least be looking at.

JimsAlterEgo

either your mortgage amount will be well under the rent you are paying or you will need to save more but you wont get a mortgage for the rent amount if arent saving also. Owning a house is far more expensive than just the mortgage payments.

I'm sure this will get shot down by some here but would the person drip feed you the deposit over a number of years (in cash*)? If so you could transfer a reasonable amount from your salary to a saving account each month and spend the cash (groceries, petrol etc). This way you would have a good savings history for the bank but not actually leave yourself short each month.

*not suggesting this to avoid any possible gift taxes etc just so the bank don't see any record of it.

D3PO

Alfonso Inexpensive Ladyfinger wrote: »

I'm sure this will get shot down by some here but would the person drip feed you the deposit over a number of years (in cash*)? If so you could transfer a reasonable amount from your salary to a saving account each month and spend the cash (groceries, petrol etc). This way you would have a good savings history for the bank but not actually leave yourself short each month.

*not suggesting this to avoid any possible gift taxes etc just so the bank don't see any record of it.

Or they could actually make the effort to save a deposit honestly without trying to fool the banks .....

superman28

1500 a month for a 3 bed semi, sounds cheaper than paying for a mortgage for a 3 bed semi,, depending largely on where abouts you are..

For example a 3 bed in Clontarf (Ashbrook) costs €470,000 at %4.5 mortgage cost is about €2,124 a month...

The same house to rent is €2,000 a month... with no debt

So just do your sums and make sure its better value to buy than rent...

DrBass

D3PO wrote: »

spending a little less time with your child

This makes me sad -

D3PO

D3PO wrote: »

Or they could actually make the effort to save a deposit honestly without trying to fool the banks .....

They should save what they can but if they can only manage a small amount then what I suggested may be a solution. I don't think anybody has much sympathy for the banks in this country so fooling them isn't going to bother many people. Stuck in rented accommodation is not how most people want to live once they settle down and if it takes a legal trick or two to meet the criteria for buying then so be it.

D3PO

Alfonso Inexpensive Ladyfinger wrote: »

They should save what they can but if they can only manage a small amount then it what I suggested may be a solution. I don't think anybody has much sympathy for the banks in this country so fooling them isn't going to bother many people. Stuck in rented accommodation is not how most people want to live once they settle down and if it takes a legal trick or two to meet the criteria for buying then so be it.

Whilst the banks have a large portion of blame to take on, those that took out mortgages that they patently couldnt afford by a combingation fo fuding application details by doing similar things to what you suggest as well as other things are equally to blame.

Have we not learnt anything ?

D3PO

D3PO wrote: »

Whilst the banks have a large portion of blame to take on, those that took out mortgages that they patently couldnt afford by a combingation fo fuding application details by doing similar things to what you suggest as well as other things are equally to blame.

Have we not learnt anything ?

There is no doubt that people are to blame also but taking what the op has said at face value I wouldn't say that they fall into that bracket. If you are paying out considerable money on rent then it could be very difficult to save enough to keep the banks happy also.

If you can get the mortgage however and the repayments are similar (or most likely a less than the rent the way things are) then repaying it is not going to be a problem especially as mentioned they are both in secure permanent so its not like their income is going to stop and will most likely increase going forward while childcare costs etc will reduce (with a child starting school etc).

Someone could very comfortably be able to pay their rent/a mortgage but asking someone to save a significant amount on top of this could be very difficult or impossible.

I wouldn't advise anyone to get a mortgage unless they are honest with themselves about being able to make the repayments or not. Using tricks to get one and then being unable to pay it is very different to doing the same and knowing the repayment would be a problem but the application criteria may be.

JimsAlterEgo

Alfonso Inexpensive Ladyfinger wrote: »

There is no doubt that people are to blame also but taking what the op has said at face value I wouldn't say that they fall into that bracket. If you are paying out considerable money on rent then it could be very difficult to save enough to keep the banks happy also.

If you can get the mortgage however and the repayments are similar (or most likely a less than the rent the way things are) then repaying it is not going to be a problem especially as mentioned they are both in secure permanent so its not like their income is going to stop and will most likely increase going forward while childcare costs etc will reduce (with a child starting school etc).

Someone could be very comfortably be able to pay their rent/a mortgage but asking someone to save a significant amount on top of this could be very difficult or impossible.

you wont get a mortgage with no saving history and same payments as your rent, especially with possibility of increase in family size

JimsAlterEgo

JimsAlterEgo wrote: »

you wont get a mortgage with no saving history and same payments as your rent, especially with possibility of increase in family size

I know this, and as I said saving enough money to keep banks happy on top of high rent is very difficult or impossible for a lot of people. Hence the suggestion I made.

Look I'm not advising anyone to do what I suggested (even though there is nothing legally wrong) I was simply giving an example of how a person (who will be gifted a deposit) could build a savings history over a number of years.

Glenbhoy

Banks look at the amount saved and the amount of regular rent payments in tandem. That amount is one of the key figures they use to base your repayment ability on. They look at the amount you have applied for and stress test the repayments (add about 1.5% to the interest rate). If the total of your rental repayments and regular savings is above that amount, it will be a very strong indicator of your ability to repay, if it's below, it's unlikely they'll offer you a mortgage for that amount.
The amount they will offer will most likely be the figure which they calculate your savings and rent can cover over the period of your loan. For example, if the monthly repayment of a €200,000 loan over 30 years at 6.25% is €1,500 and that is the total of your savings and rent, then it's likely you would be awarded that amount.

I agree with the poster who suggested that if you can find other sources of cash to pay some of your outgoings such as creche fees, and make regular savings from the resultant saving in your income, then that would make the application look better.

Posters may feel that this is morally wrong and deceitful, however, I feel that they should bear in mind that bank criteria is often quite rigid and fails to take account of changes in circumstances such as vastly reduced childcare when children go to school etc....

In saying that, you shouldn't over stretch either and in general stricter lending policies are to be welcomed.

D3PO

Alfonso Inexpensive Ladyfinger wrote: »

There is no doubt that people are to blame also but taking what the op has said at face value I wouldn't say that they fall into that bracket. If you are paying out considerable money on rent then it could be very difficult to save enough to keep the banks happy also.

If you can get the mortgage however and the repayments are similar (or most likely a less than the rent the way things are) then repaying it is not going to be a problem especially as mentioned they are both in secure permanent so its not like their income is going to stop and will most likely increase going forward while childcare costs etc will reduce (with a child starting school etc).

Do you ralise how short term that thinking is / Interest rates are at record lows, mortgage repayments have a very real possibilitiy of jumping in the medium term. Lets put it this way. My mortgage is 55% now of what it was in 2006.

Ownership equally brings additional costs that renting doesnt, life assurance, house insurance, property tax, maintenance.

Someone could very comfortably be able to pay their rent/a mortgage but asking someone to save a significant amount on top of this could be very difficult or impossible.

If you cant save a desposit and rent then honestly you have no business looking to buy a property. Its a myth perputrated by vested interests that rent is dead money, or that buying will allow somebody have more disposable income than renting (certainly not for a good few eyars after buying)

I wouldn't advise anyone to get a mortgage unless they are honest with themselves about being able to make the repayments or not. Using tricks to get one and then being unable to pay it is very different to doing the same and knowing the repayment would be a problem but the application criteria may be.

Somebody who has to resort to using tricks to get a mortgage if they were anyway honest with themelselves would realise they should not be getting one.