How Much Can You Borrow For A Mortgage

Rataan

The only information that I can find online about borrowing for a mortgage is that you can only borrow up to 3.5 times your gross annual income, and you must save a 20% deposit. Are there other rules for when the situation is more complicated?

Using a simplified example, let’s say that somebody already has a mortgage on a property that is valued at 200k, and the outstanding amount that is still owed on the mortgage is 50k. Let’s say his gross annual income is 50k and he has a 50k deposit saved. Using the rules above, he would be able to borrow 175k, and with his 50k deposit would then be able to afford a property valued at 225k.

In this example he has already paid off 75% of a property valued at 200k, so wouldn't he then own an asset worth 150k? Would this collateral count for anything? Would it mean that he could borrow more than the limit of 3.5 times the gross annual income?

peteb2

I'm not a mortgage guy. They might come around later. But off the bat, he doesn't own an asset worth €150k. He doesnt own any asset until such time as the mortgage is cleared in full. So he still has a liability of €50k.

If you wanted collateral, why would you not just clear the mortgage with the 50k, sell the property and use that 200k towards the new property.

And you've applied the rule wrong. With an income of €50,000 x 3.5 = €175,000. €175,000 is the max amount of the mortgage they will offer. So you have to deduct the 20% deposit from this. So the max the bank will give you is €140,000 + your €50k means you can buy a property of €190,000.

And again these are all max numbers. Bank will reduce lendings for other borrowings, childcare, etc.

Banks arent keen on cross-guarantee's anymore.

Have you spoke to a broker?

Rataan

Thanks Pete. No, I haven’t spoken to a broker yet. That will be my next step. At least now I’ll have some of my facts straight when I go to meet with them.

If the mortgage of 50k was cleared, and he owned the 200k valued property outright, would that make any difference to the amount that the bank would lend? Obviously the rental income from this property would supplement salary to increase the 3.5 times limit, but would the bank give any consideration to the amount that they would lend, based on the value of a fully paid off property that they could hold as collateral? It just seems a shame to give up a property that could supply a steady rental income.

Trish56

As a second time buyer you can borrow up to 80% of the purchase price subject to 3.5 times either single or joint income. Lenders also apply their own criteria and policy and exceptions can be made in certain cases to lend up to 90%.

FAQ on Central Bank Mortgage Regulations copied below
http://www.centralbank.ie/press-area/press-releases/Documents/FAQ%20–%20New%20regulations%20on%20residential%20mortgage%20lending.pdf.

Example : Purchase Price = 225k
80% Mortgage = 180k
3.5 times 50k = 175k amount you qualify subject to lenders criteria.

Nervous Wreck

3.5x salary is a CBI mandate that the banks can't circumvent. I'm not sure about the rental property income but afaik, most banks are hesitant to count that because you could lose your tenants at any time. No expert but that's my understanding of it anyway.

Rebel1977

Criteria also if its a joint application you have to have a set level of income left over each month after they stress test the mortage plus if there is children they factor in childcare costs etc

Greyian

peteb2 wrote: »

And you've applied the rule wrong. With an income of €50,000 x 3.5 = €175,000. €175,000 is the max amount of the mortgage they will offer. So you have to deduct the 20% deposit from this. So the max the bank will give you is €140,000 + your €50k means you can buy a property of €190,000.

That is incorrect.

You would be able to get a maximum mortgage of €175,000, not €140,000.

There are 2 criteria for calculating what mortgage someone could get:
3.5 times income: €50,000*3.5 => €175,000
80% LTV: He has deposit of €50,000, so max mortgage is €200,000 (20% = deposit, 80% = mortgage).

The maximum mortgage would then be €175,000 (the lower of the 2 figures). That mortgage would, however, be dependent on purchasing a property at a price of €218,750 (so €175,000, 80% mortgage + €43,750, 20% deposit provided by buyer). Obviously, you could purchase an even more expensive property, if you had a larger deposit.

spring21

Trish56 wrote: »

As a second time buyer you can borrow up to 80% of the purchase price subject to 3.5 times either single or joint income. Lenders also apply their own criteria and policy and exceptions can be made in certain cases to lend up to 90%.

FAQ on Central Bank Mortgage Regulations copied below
http://www.centralbank.ie/press-area/press-releases/Documents/FAQ%20–%20New%20regulations%20on%20residential%20mortgage%20lending.pdf.

Example : Purchase Price = 225k
80% Mortgage = 180k
3.5 times 50k = 175k amount you qualify subject to lenders criteria.

What about for a first time buyer ? Joint application with 60000 income ?

spring21

spring21 wrote: »

What about for a first time buyer ? Joint application with 60000 income ?

Anyone , please 😊

Greyian

spring21 wrote: »

Anyone , please 😊

You'd qualify for €210,000 on the 3.5*income LTI. You'd need a deposit of ~€23,000 in order to get this much (€210,000 = 90%, therefore 100% = ~€233,000).

So basically, you could buy a property of €233,000 with 3.5*income mortgage+€23,000 deposit. If you want something more expensive, you have to come up with the rest of the funds yourself (e.g. €210,000 mortgage + €40,000 savings, instead of just €23,000 savings).

You're not, however, guaranteed to get 3.5* income. If you had 2 kids, in childcare on that joint income, it would likely be a bit lower.

You might also be given a larger mortgage if the banks believe that making you one of the 15-20% exceptions to the rule is a good business decision.

Edit: Just to add, that's if both of the applicants are first-time buyers. If either is not, then the mortgage application does not benefit from FTB status. In that case, you'd need a deposit of €52,500 (€210,000 = 80%, so 100% = €262,500) to get the full €210,000.

Trish56

spring21 wrote: »

What about for a first time buyer ? Joint application with 60000 income ?

As first time buyers you can borrow up to 90% of the purchase price but limited to 3.5 times joint income = 60k x 3.5 = 210k. You will need a deposit of 10% plus 1% stamp duty and approx. €2,200 in legal fees.

Lenders criteria will also apply. As a couple you will need to have €2050 plus €250 per child per month disposable income after stress tested repayments.

spring21

Thank you for taking the time to write and explain all the above.

Rebel1977

For a self build when someone is buying a site how do they work out how much they can lend i.e. do they lend 90% of site purchase and 90% of cost to build ?