Understanding the mortgage process

robocode

Hi. We're hoping to buy a house this summer and I'm just trying to clarify a few things. We're looking at a new house for €275k, so the breakdown for a deposit would be

• 10% of 220,000 = 22,000
• 20% of 55,000 = 11,000
• Total Desposit needed = 33,000

So we would save 33,000 and then be asking the bank for a mortgage of 242,000?

The developer wants 10% on signing of contracts and the balance on completion of the house. So do we save 33k, get approved for the 242k, then from the 33k we saved we give the developer the 10% on signing the contract, and then when the house is complete we draw down the approved 242k to give them.

Am I thinking of this correctly?

Butters1979

You are thinking correctly. Any deposit you pay goes to the overall cost of the house so would come from your €33K deposit. It is not required as extra.

Your maths is correct except the bank will look for savings of more than just the deposit. It would require stamp duty and solicitor fees and land registry etc. so expect them to require you to have probably closer to €38K. The bank would clarify this.
Also if you're looking to borrow €242K then this can't be more than 3.5 times your combined wages. You need an income (gross) of €70K or more.

seamus

Yeah, you're pretty much there.

10% on signing is pretty much standard.

There are other costs you may not have considered, so you will need more than 33k in the bank.

- Solicitors fees, around 1% , so roughly €3k
- Stamp Duty, 1% - €2,750
- Sundry expenses - set aside €500 for this.

So you'll need to have just over €38k in the bank. In order:

1. Agree the price with the builder (which may need a small deposit that you give to the agent selling it)
2. Find a solicitor and engage them for buying the house
3. Apply for full mortgage approval
4. When your mortgage approval and the contracts come through, you sit down with your solicitor and go through them and sign them
5. Transfer the 10% deposit to your solicitor, who sends it across to the builder's solicitor along with the signed contracts
6. When the builder is ready for you to snag, you snag. And you do not move any further until the builder has finished the snag.
7. Before closing, you solicitor will issue you with a balance statement of how much money they need from you. This will include their own fees, the stamp duty, their expenses and the balance of the purchase price. So (Purchase price - (Booking deposit + contract deposit + mortgage amount))
8. The solicitor requests to draw down the mortgage from the bank
9. Solicitor fills out tonnes of paperwork and transfers the balance of the purchase price and the drawn down mortgage to the builder's solicitor, who confirms that the sale is now closed. The property is now yours.

robocode

Ah crap, I didn't think I would have to have the solicitors fees and stamp duty saved too. We were going to go with BOI and hoped to use the 2% cash back for the stamp duty. A family member is a solicitor so we were going with them too (for a cheaper rate obviously)

Naid23

I am looking for the same amount and on a recent chat to KBC they told us we would need €35k for 275K which we were a bit shocked at so maybe bare that in mind.

The new rules seem to be the minimum they can ask for but they can ask for more.

Butters1979

robocode wrote: »

Ah crap, I didn't think I would have to have the solicitors fees and stamp duty saved too. We were going to go with BOI and hoped to use the 2% cash back for the stamp duty. A family member is a solicitor so we were going with them too (for a cheaper rate obviously)

They will insist you have those savings upfront. As someone who's just been through it, believe me it's a good thing they do. you most likely won't get the 2% back until after you need to pay stamp duty anyway.

seamus

robocode wrote: »

Ah crap, I didn't think I would have to have the solicitors fees and stamp duty saved too. We were going to go with BOI and hoped to use the 2% cash back for the stamp duty. A family member is a solicitor so we were going with them too (for a cheaper rate obviously)

You need to pay the stamp duty on closing and you won't get the 2% back for a few weeks after closing. A good solicitor might front up the fee, though professionally it's something they can't really do, it's a conflict of interest.

The bank will ask where you're getting the full amount from. Strictly speaking the deposit must come from savings (i.e. it cannot be borrowed), while the stamp duty and fees can be borrowed. But since borrowings affect affordability, the bank don't want to see you with a €5k short term loan on the books.

If you can arrange a "gift" of the fees and stamp duty, the bank will be more amenable to that.

robocode

Right, so I should put the 2% out of my head. Actually the house won't be complete until August and the 2% offer is for mortgages drawn down by 31st June so I'll miss it anyway

robocode

How about if I said to the bank I'd pay the stamp duty and legal fees with my credit card? It's killing us because the of the timing, the house we want needs to have 10% down on it in about 2 months time. We'll have the 10% but not the money for the stamp duty and legal fees, but we are saving over 2k a month so within another 2 months we'd have the money to cover those

Butters1979

robocode wrote: »

Right, so I should put the 2% out of my head. Actually the house won't be complete until August and the 2% offer is for mortgages drawn down by 31st June so I'll miss it anyway

It was only valid until 2016, then until March, now until June, don't be surprised if it's extended again. It's their biggest selling point.

robocode wrote: »

How about if I said to the bank I'd pay the stamp duty and legal fees with my credit card? It's killing us because the of the timing, the house we want needs to have 10% down on it in about 2 months time. We'll have the 10% but not the money for the stamp duty and legal fees, but we are saving over 2k a month so within another 2 months we'd have the money to cover those

The bank would never allow you to substitute required savings for credit card debt at such a high interest rate. That's just borrowing at higher than the mortgage rate, it's worse. Is there a family member who can gift you the remainder of the money for now. and then you can 'gift' them some money back after you close?

Where are you on your mortgage application? A lot of this can be talked through with the bank.

robocode

Putting in the application next week so should probably stop bugging you good people here and just ask the mortgage advisor directly

We were told to put in an application for €200k now because it will allow us get all the paperwork done, and then in a few months when we have more saved it will be straightforward to amend the amount requested without jumping through all the hoops again

seamus

robocode wrote: »

How about if I said to the bank I'd pay the stamp duty and legal fees with my credit card?

Oh, jesus, no.

I know it sounds like a no-brainer with the 2% cashback coming through, but the bank has to factor that into your affordability calculations and will crucify you for it.

You actually sound like you're in a good place - you don't need to have the full amount in place when getting approval, you just need to have it in place when drawing down. If the bank see you're saving €2k a month and that you won't draw down until at least August, then it becomes clear that you will have the funds to cover it. They can offer mortgage approval contingent on your providing an updated savings statement prior to drawdown, which shows what you have available.

Be no harm to go sit down and talk to them to get more clarity.

You could just say you are getting a gift of "x" amount towards the costs even if you aren't.

I know one or two people who said they were getting gifts towards the deposit while making their application but in reality they weren't and just planned to save the difference between making the application and buying the house.

seamus

Kairi Fluffy Misfortune wrote: »

You could just say you are getting a gift of "x" amount towards the costs even if you aren't.

I know one or two people who said they were getting gifts towards the deposit while making their application but in reality they weren't and just planned to save the difference between making the application and buying the house.

Yeah, that would have worked 10 or even 5 years ago, but it won't work any more.

The central bank has the banks pinned down on affordability checks that they will want proof of where your funding is coming from and won't just take your word for it that it'll appear.

So if you tell them that a parent is giving you €5k as a gift, they will want a confirmation letter from that parent that they are in fact providing a non-repayable gift.

I know some banks even want proof from the parent that they have the funds, to ensure the money is actually there and isn't being borrowed.

Butters1979

robocode wrote: »

Putting in the application next week so should probably stop bugging you good people here and just ask the mortgage advisor directly

We were told to put in an application for €200k now because it will allow us get all the paperwork done, and then in a few months when we have more saved it will be straightforward to amend the amount requested without jumping through all the hoops again

You're not bugging anyone, we're here answering because we want to be. Have the conversation with the bank though, they will work with you to make it work if they feel you're not a risk. The fact that you can get a deal on solicitors fees is something they will take into account

You could put in a smaller application now, but it can be messy to change later as shortly you'll need a banks valuation on the property etc.. If you think you will have the funds by the time of draw down just go for it, as you don't need the bank statements to show funds for pre approval, you will need them closer to draw down.

robocode

Ah ok, that's not so bad then because we will have the extra saved by the time we need to drawdown. So there is a chance we could say to the bank we have the 10% ready for the developer, we'll be able to give that to them in 2 months and by August we'll have saved what would have been the extra needed for the full amount.

Thanks for your help. We'll sit down with them this week so and lay it all on the table and let them guide us I guess

seamus

seamus wrote: »

Yeah, that would have worked 10 or even 5 years ago, but it won't work any more.

The central bank has the banks pinned down on affordability checks that they will want proof of where your funding is coming from and won't just take your word for it that it'll appear.

So if you tell them that a parent is giving you €5k as a gift, they will want a confirmation letter from that parent that they are in fact providing a non-repayable gift.

I know some banks even want proof from the parent that they have the funds, to ensure the money is actually there and isn't being borrowed.

Well I know someone who just drew down their mortgage this year and had claimed a parental gift to bring their deposit up to 10% to get their initial approval, a gift they were never getting and saved up the "gift" in the months spent searching for the right house.

Along with plenty of other things I've come across lately like someone getting a mortgage while hiding the fact they have another one etc I think people are assuming the checks done are much more thorough than they actually are.

intheclouds

Kairi Fluffy Misfortune wrote: »

I think people are assuming the checks done are much more thorough than they actually are.

Wouldnt surprise me in the slightest, got an unsolicited letter from my bank offering me a loan recently - thought Id woken up in 2005!

seamus

Kairi Fluffy Misfortune wrote: »

Well I know someone who just drew down their mortgage this year and had claimed a parental gift to bring their deposit up to 10% to get their initial approval, a gift they were never getting and saved up the "gift" in the months spent searching for the right house.

Initial approval and full approval are not the same thing. You can say whatever you like in the initial approval, you'll never be asked for supporting documentation.

I think people are assuming the checks done are much more thorough than they actually are.

As someone who has bought in the last year and even pulled in a few favours to make the process easier, I can tell you that the banks are being just as sticky and thorough as the media are making them out to be. Having bought at the height of the boom on half the salary, I didn't have to jump through a fraction of the hoops I did this time.

jay0109

robocode wrote: »

Ah crap, I didn't think I would have to have the solicitors fees and stamp duty saved too. We were going to go with BOI and hoped to use the 2% cash back for the stamp duty. A family member is a solicitor so we were going with them too (for a cheaper rate obviously)

Don't pay 3k for solicitors fees and defo not a % rate.
I'm buying a house in Dublin at the moment and the rate is €950+ vat

lainycool

jay0109 wrote: »

Don't pay 3k for solicitors fees and defo not a % rate.
I'm buying a house in Dublin at the moment and the rate is €950+ vat

Hi do you mind me asking what solicitor you are using, I'm mortgage approved at the moment and am looking for a solicitor that's reasonable!

Alkers

We got mortgage approval subject to being to able to demonstrate where the remainder of the deposit was coming from (gift from parents).

Xaniaj

seamus wrote: »

As someone who has bought in the last year and even pulled in a few favours to make the process easier, I can tell you that the banks are being just as sticky and thorough as the media are making them out to be. Having bought at the height of the boom on half the salary, I didn't have to jump through a fraction of the hoops I did this time.

I bought just before Christmas (with UB) and I thought there would be a lot more hoops to jump through! My girlfriend and I did have very good savings record and large deposit but we weren't even asked for a salary cert (although had provided print outs of payslips etc!).

They were, however, insistent on seeing the full deposit, stamp duty and professional fees in our joint account before giving the full approval.

SarahMollie

jay0109 wrote: »

Don't pay 3k for solicitors fees and defo not a % rate.
I'm buying a house in Dublin at the moment and the rate is €950+ vat

+1

Yes 1% would be nuts.

I cant exactly remember what I paid but it was inline with your costs above.