When it comes to getting mortgage approval, there are a lot of things to consider. It’s a confusing process full of figures and formulas, but there are 3 key numbers that matter the most.
If you are looking for a fixed rate mortgage, the first thing you should think about is how long you would like to fix your mortgage for. It’s important that the length of this fixed period suits both your financial and personal circumstances.
1.0 Am I mortgage ready?
A little planning goes a long way in securing a mortgage. Now’s the time to have a good look at your finances, and be honest with yourself about what you can afford. Here’s how to get an overview of where you’re really at financially. And don’t worry – it’s all Simpler here.
1.1 What is my monthly budget?
If you’re renting, the amount you pay in rent each month is a good indicator of how big a monthly mortgage payment you could afford. Don’t forget those additional expenses that can also arise – like replacing a roof tile or fence.
To help get a realistic picture of your budget, run through this small checklist:
- Find your net monthly income – that’s the monthly salary amount that goes into your bank account.
- List your fixed expenses – these are outgoings that occur regularly each month, such as rent, bills, loan repayments and gym membership.
- List irregular expenses – those things that aren’t ‘timetabled’, like holiday spending, clothes shopping or a haircut. To get a rough idea of monthly budget, estimate the total for the year and divide by twelve.
- List any long term savings – these might be into retirement, investment or savings accounts. Once you have a mortgage, you’ll want to try and keep these up, so it’s important to know that this money is already accounted for.
- List discretionary expenses – that’s money used each month for food and entertainment.
1.2 What should I ask myself early on?
These are the big questions that you’ll need to answer to secure a mortgage. Ready to scroll through them?
Are you in regular employment with a steady income?
You’ll need to have completed any probationary work period, and have at least six months (preferably twelve) in continuous employment.
Can you show that you can repay?
This means being able to demonstrate a strong monthly repayment history.
Have you saved enough for the deposit, survey, legal fees and furnishing the property?
If you’re a first-time buyer, you’ll need a deposit of at least 10% of the total house price. This might come from savings, a gift from family, or be a loan.
Can you show that you can manage money and plan financially?
For example, by pointing to a regular savings account.
Have you got the paperwork together?
You’ll need three months’ payslips, six months’ current account statements, six months’ savings account statements, 12 months’ loan account statements for all existing loans (including mortgages) and a recent P60.
It’s a good idea familiarise with some of the formulas that banks use to assess your application. We go into more detail on mortgage approval for first-time buyers here.
1.3 How do I know if I can repay?
If your estimated mortgage is more than your current rent, set aside the extra amount every month to simulate making mortgage payments. If your budget still feels comfortable, it’s a good sign that you’ll be able to afford a mortgage. Plus, the extra money you’ve saved during this exercise can go towards your deposit.
Tip: planning ahead.
It’s a great idea to practice a mortgage payment, to know if you can afford it.
2.0 How do I find my home?
It’s not just about what kind of house you can afford, but about the kind of life you want to live. For example, would you prefer something further out that’s a little larger with more outdoor space for children, pets and activities – or something perhaps a little smaller that’s closer to work, restaurants and town life?
2.1 What can I afford?
There’s no one rule for the amount you can borrow – it depends on a number of factors, just one of which is your salary. In fact, a higher salary doesn’t automatically mean you can borrow more. Lenders determine the amount you can borrow by looking at your overall financial profile - including spending habits and financial commitments such as school fees or childcare costs.
2.2 Do you have an affordability calculator?
You bet we do — enter your details below to get a rough estimate of what you could spend on a new home.
How does this calculator work? This is intended as a guide and is not an offer of a mortgage loan.
2.3 What am I looking for?
Close your eyes and take a little time to imagine what kind of property you and your family could happily live in. Think of the specific needs you have – mobility, for example, or proximity to schools. Then, try to match these needs to a location. Spending a little time exploring your options will help you make the right choice.
2.4 What are the key location issues I need to know?
- Travelling distance – from work or from loved ones.
- Transport and roads – such as frequency and reliability of trains, and quality of roads.
- Neighbourhood safety – will you feel safe there in the day time and at night?
- Schools, hospitals and public amenities – such as parks and libraries. Are these well run and well funded?
- Private amenities – such as shops, restaurants, cinemas and pubs; those places that help you enjoy life.
Tip: finding the right home.
A new home is the perfect mix of what you want, what you can afford and what’s available.
3.0 How do I apply for a mortgage?
Hopefully now you have a clearer understanding of what you can afford and the broader considerations. Now it’s time to get started on the mortgage application process (fanfare please).
3.1 Who do I ask?
Should you talk to your broker or to your bank?
Your bank can only tell you about their selection of mortgage products.
But a broker (such as Simpler) can compare most mortgage products from a variety of lenders. They’ll highlight the best options, letting you know how much each loan would cost you over the repayment term. It can be a real eye-opener to see the true cost of each loan, side-by-side – and it’s surprising just how much difference your monthly repayment can make to your standard of living.
Make sure any broker you use is authorised by the Central Bank of Ireland by checking their registry here.
3.2 What documents will I need?
Here’s a quick checklist you can run through:
- Salary certificate
- Recent payslips
- P60s (last year and the previous year)
- Six months’ bank statements
- Evidence of savings
- Gift letter
- Loan statements (car loans or Credit Union loans)
- Credit card statements (last three months)
- Details of rent
- Photo identification
- Address verification
3.3 How does the application process work?
Here’s roughly what you can expect – because we’ve made things Simpler:
Collecting Documents – 1 to 3 days
With the exception of the salary cert, hopefully you will have all documents at hand.
The salary cert will need to be filled out and completed by your employer.
Approval in principle – 5 to 30 days
This varies by bank and by the complexity of your mortgage application but we find that most applications receive approval in principle in between 5 to 30 days.
This can take loneger depending on queries raised by the lender.
Finding a home – it depends
Some people come to us with a house already picked out some people like to get approval in principle before they start house hunting.
It can take a few months to pick a place but you can rest easy that you have the financing in place to honour any agreement you may make.
Tip: inside the mind of a lender.
Any lender wants to know three things: Can you pay now, will you continue to pay, and do you have proof? If you can put a tick against those three factors, you’re in!
4.0 How do I find the right mortgage?
Don’t be tempted to go with any mortgage; instead find the right mortgage for you. This way, it’ll make sense now and in the future, with a sustainable financial commitment.
4.1 Should I choose fixed rate or variable rate?
Borrowing money comes at a cost, which is called interest. Interest is calculated as a percentage of the loan amount. The larger your mortgage, the more impact your interest rate will have on your repayment.
Lenders offer two types of mortgages – fixed rate or variable rate. A fixed rate mortgage has the interest rate set for the life of the loan, which is typically 15, 25 or 30 years.
Variable rate mortgages are 30 year loans. They often have a fixed rate for a set time – usually three to five years – after which their rates adjust according to the market. For example, a five year fixed rate mortgage has a set rate of 3% for the first five years, after which the rate will adjust to reflect the current market rate at 3.5%.
Rates often rise, so having been lower for the fixed time period, they can rise to be more expensive long term.
Most borrowers opt for a fixed rate mortgage for a period of three to five years, which offers the security of knowing what your monthly repayments will be. After the fixed period, it reverts to the standard variable interest rate, where repayment amounts may fluctuate.
If you think interest rates are likely to rise significantly in the future, you should lock down a fixed rate mortgage for as long as possible.
It always pays to consider carefully your circumstances, and discuss these thoroughly with your broker.
4.2 What about loan length?
Loan length dictates how much you will repay each month. If you are paying back €400,000 over 30 years you will be paying back less each month than if you borrowed €400,000 over 20 years.
The disadvantage of a longer loan is that, although you pay back less money monthly, they cost more long term because as long as the loan is outstanding, your lender will charge you interest. We go into more detail on how long to fix your deal for here.
Loan length also affects your mortgage amount. A lender will let you borrow more money with a 30 year mortgage than a 20 year a mortgage. Your mortgage amount is based on your ability to repay and it’s often the case that the higher monthly repayments you face with a shorter loan can disqualify you from the mortgage amount that you need.
4.3 Where do I sign-up?
Try our seamless online service that is tailor-made for first-time buyers.
In a few minutes you’ll know what you could borrow, in a few hours we’ll be presenting your case to lenders, and within a few days, you could have your mortgage approved, putting you in a strong position to buy.