Buying your first property is a daunting task. This is my step by step guide for first time buyers seeking more information on the process.
Start Saving
The first and most important step for anybody looking to buy their first property is to start saving! First time buyers are eligible for high LTV mortages but will need to have some savings themselves to make up the rest of the value of the property. This could be up to 10%, if that is the case then it means that if you want to buy a property for €300,000 you will need to save €30,000. If you want my tips on how to start saving click here.
Research Your Options
Start researching your options. There are a number of online calculators that will help you calculate the value of the property that you are eligible to get a mortgage for. My favourite is from mortgages.ie. The mortgage amount you can borrow is based on 2 things; your current salary and your ability to repay. You can borrow 3.5 times your salary. You must also be able to show capacity to repay the mortgage. For this the lender will look for proof that your monthly savings and existing rental payments cover the monthly cost of repaying the mortgage. The savings and rental payments must be consistent and should show clearly on your bank statements that you will have to provide when applying for the mortgage. This highlights again the importance of saving! If you do not meet the salary or repayment criteria don't panic, there are exceptions available. For this I would advise you to talk to a broker or lender and discuss your situation with them. Also you have to keep in mind the solicitors fees, valuation fees, engineers report fees, stamp duty and fit out costs. In general, the bank will look for you to have 5% of the value of the property left over after paying for the property itself to cover these extra costs.
Choose a lender and mortgage terms
If you haven't yet saved enough to start the application process, I would still advise you to talk with a mortgage broker or bank, there may be exceptions available to you and being informed of these may allow you to proceed earlier than you expect. At the worst case, you can come away from the meeting with a plan for getting to where you need to be. Mortgage brokers do not provide mortgages but help you get your mortgage. They will talk with multiple banks and try to get you the best deal. You do not need a mortgage broker if you are confident enough in your ability to research all available mortgages, assess the options and deal with the banks directly.
If you have been saving and think that you are ready to start looking for properties then at this stage you should choose a broker or bank and make an application for a mortgage. They will first approve you for a mortgage in principle. This means that they will give you preliminary approval on a mortgage as long as the property you chose and your detailed application are approved. Some things you will may need to provide at this stage would be;
- A completed application form
- A colour copy of your photographic ID. The lender will need to sign the copy as a true copy of the original document.
- Proof of address e.g. a bank statement or utility bill
- 6 months statements for all bank accounts
- 12 months statements for all savings accounts
- 12 months statements for all credit card or loan accounts
- Explanations for any unusual or large spending habits
- Explanation of the source of your savings for the deposit
- A salary statement completed and signed by your current employer
- Your most recent p60
- 3 months payslips
- If self employed you will need 3 years accounts provided by your accountant
- If separated you will need to provide a separation agreement and details of your maintenance commitments
- If you worked overseas you will need to provide a credit report from the country where you worked
Many options exist for mortgage plans. The first thing that you can change is the term of the mortgage. Depending on your age and ability to repay, you may have multiple term options allowing you to repay your mortgage over a number of years. Longer mortgages will pay more interest over the lifetime of the mortgage but shorter mortgages will have higher monthly repayments. You need to chose an option that suits you best. The next thing you can change is whether the mortgage is a fixed or variable rate mortgage. Fixed rate mortgages will have a lower interest rate but they tie you in to that mortgage for the fixed term. If you want to change lender or switch mortgages during the fixed term you will pay a penalty. If you want to pay a lump sum on the mortgage during the fixed term you will also pay a penalty. Some lenders now allow you to overpay on the monthly payments without a penalty. The benefit is that during that fixed period the mortgage interest rate will not change and your repayments will remain constant. If you chose a variable rate mortgage you can make lump sum payments, change mortgage or overpay monthly as you choose. The drawback with this is that the mortgage interest rate can change and your monthly repayments can change, going up as well as down. You will need to assess the options and chose the option that is best for you.
One of the best online sources for researching mortgages is the mortgage calculator on mortgages.ie. It will give you available mortgage options showing the monthly repayments on each, remember, variable rate mortgages can change. Bear in mind this is not an exhaustive list and other mortgage lenders exist, carry out your own research to find these options.
Choose a property
Now that you have mortgage approval you can start your search. Knowledge is the most import thing here. Choose an area and make sure that you constantly keep yourself up to date with the properties available. One great piece of advice is to return to a property outside the hours of the viewing, knock on the neighbor's door and ask them some questions. Usually they are open to helping if you explain that you are a prospective buyer. You either get a head start on getting to know your neighbors and you get some great information about the area and property or you discover that your neighbors aren't so inviting. The main thing for any purchase is not to overpay so do your research on the value of other similar properties in the area. If you are happy make an offer. Never offer your mortgage approval limit on the first offer and never let the agent or seller know your mortgage approval limit. Though estate agents are friendly and supportive remember that they are acting on the sellers behalf and not yours!
Choose a solicitor and insurance and complete the mortgage application process
Once you have had an offer accepted you can choose a solicitor. Get in contact with several solicitors and ask them for quotes. Review each of these quotes and ask around for the solicitors reputation. Though not always the case, remember that the cheapest is not always the best. Your mortgage and property could be the largest investment you will make in your life. It is not one you can afford to be messed up.Your solicitor will act on your behalf to draw up contracts, draw down your mortgage and register the property in your name. You will also need to have insurance on the property. Your bank may provide this but you are also free to shop around. If you are using a broker they will help you find the best deal. At this point you will also have to pay a deposit on the property.
Now that you have an exact property you can complete the final steps in the mortgage application process. You will need to get an official valuation carried out and provided to the bank. In some cases you may also need an engineers report (even if not required you may want to do this anyway for your own peace of mind).
Signing offer letters and contracts
You will be provided with an official mortgage offer letter from your chosen lender. If you have a mortgage broker they will help you to review this and provide financial advice. Your solicitor will provide legal advice. At the same time the sellers solicitor will issue a contract of sale to your solicitor. Your solicitor may clarify some details with you and may seek amendments to the contract. This could happen several times until both solicitors are happy. Your solicitor will call you in and at this point you will sign all contracts. Your solicitor will send the signed contract to the seller with an agreed closing date and draw down your mortgage. Keep in mind that the average time from offer acceptance to the final closing date in Ireland is 120 days, 4 months! Once the seller sends back the contract signed the deal has been agreed and once the closing date comes around the property moves into your possession.
Disclaimer - Buying a house is one of the most important decisions you will make and these steps are my experience. I am not a professional financial adviser and any decisions you make are at your own risk. I just seek to pass along information I learned along the way. I advise you to carry out your own research and if needed seek professional advice.
