Mortgages scare some people and if you are reading this because you are considering a mortgage then hopefully it will help you realise that while buying a property is a big undertaking, getting a mortgage doesn’t need to be. In this article there are some questions, answers, and a few general tips to bear in mind.
Which is better, a bank or a broker?
Obviously I have a bias towards brokers, a good brokerage with at least 12 agencies will be able to give you a huge selection of choice across the market and explain the pro’s and con’s of each loan that may suit you. A bank on the other hand will give you a choice of only their own products, as I always say ‘has your bank ever sent you down the road to a different institution’? If the answer is ‘no’ then you get the picture, independent choice is what brokers are for. However, if you are comfortable going direct then brokers may not be the answer for you, currently 60% of the market for residential mortgages is via brokers, so that means that 40% don’t use brokers.
What do banks want when you apply for a mortgage?
Generally banks will look for proof of your ability to repay a loan. When a bank gives you a mortgage they are reliant on you paying that loan off over time and doing so in a timely manner, the difficulty is that once you have the loan they can’t just ‘take it back’ so they only have one little snapshot in time with which to make a decision that has to be a good call for the next 30 years. That is not easy, having said that, the majority of people honour their debts so banks will look for things like a ‘proven ability to repay’ which is perhaps the strongest reference a potential borrower can have [things like paying rent or other loans in the past come into play]. You must also have sufficient income to repay the loan and also a deposit.
How much of a deposit do you need to buy a house?
Estate agents will generally say 10% at signing of contracts, however, if you get a 92% mortgage then it will be 8%, the main thing is that sufficient money is put down at the time contracts are signed so that if the buyer pulls out they suffer a decent loss, the ability to suffer loss for not honouring your end of the deal is one of the few things that make the property market work, otherwise people would pull out of deals all the time. Why? Well, say you had bought off plans in 2006 and paid no deposit, the property prices fell, if you didn’t stand to lose your deposit you might gladly walk away from the deal. 100% mortgages are now a thing of the past so suffice to say that in 2008 you will need a deposit to buy a property in Ireland.
What documents or evidence will a bank look for?
This ties in with the question about what banks want, in order to prove you can repay the debt you make your case via an application [if you use a broker they do all of this for you and present it] which has documents to back up the story of your own situation, if you are employed then this will generally be things like P60’s, payslips or wage slips, a salary certificate, bank accounts [or more accurately bank statements], savings statements and other financial information. The lender looks at all of this, and uses it as evidence in making a decision on whether to lend or not, there are other factors at play such as affordability, and the loan to value of the purchase but assuming all of these are within the required boundaries it is your application upon which approval will hinge.
Now that we know a little about what banks want it is easier to talk about what steps you take to get a mortgage. Firstly you will need to gather all of your documentation, secondly you will need to go to your broker or to a bank with that documentation for an initial consultation (this can be done remotely too) and then of course you will need details of what it is that you hope to buy. As long as you deal with competent professionals the process is relatively stress free and straight forward, mortgages are nothing to be scared of.
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