The First Time Buyer’s Guide To Buying A Home
Getting Your First Home
Getting your first mortgage is a major step. Taking out a home loan like this is likely to be the biggest financial commitment you have ever made, and so it’s important that you know the facts. Don’t panic if you haven’t yet got to grips with all the ins and outs of these financial products though. There is plenty of information and advice on offer to help ensure you make the best possible choices. To get you started, we’ve put together a simple guide that covers the basics.
DO YOUR SUMS, AND DON’T BE TEMPTED TO OVERSTRETCH
One mistake that many first time property buyers make is to overstretch their finances by taking out a loan that’s simply too large. Before you start viewing properties, it’s important to do your sums and decide exactly how much money you can afford to repay. Remember, as well as your monthly mortgage repayments, your budget will have to cover a range of other expenses, including household bills, insurance policies, maintenance work and more.
Bear in mind that when you’re applying for a loan, lenders will want to see proof of your income and expenditure. After all, they need to know that you will be able to keep your repayments up. To help you get a better idea of the size of mortgage you can cope with, you can take advantage of the various affordability calculators now available online.
TRY TO SAVE UP A DECENT DEPOSIT
When it comes to property deposits, size really does matter. The more money you can afford to put down on your chosen home, the lower your mortgage interest rate should be. This is because lenders are exposed to lower risks when they offer smaller loans.
It’s also important to be aware that strict rules now apply to deposits. The Central Bank has set limits on the size of home loans that can be made by commercial lenders to buyers. Under the rules, first time buyers have a loan to value (LTV) limit of 90%. In other words, you will need a deposit of at least 10%. This applies to properties worth up to €220,000. Above this level, the maximum LTV is 80%. So, if you’re purchasing a property worth more than this figure, you’ll need a deposit of 10% on the first €220,000 and 20% of the remaining balance.
FIND THE RIGHT TYPE OF LOAN
It’s important to get to grips with the different types of home loans on offer too. By far the most common versions are annuity mortgages. Also known as repayment mortgages, these agreements require you to pay off an agreed amount each month to enable you to clear your loan by the end of an agreed term. You can usually choose between fixed or variable rate annuity mortgages, or a mixture of both.
Alternatively, interest only mortgages require you to pay back just the interest on your loan and not the capital. This means that the amount you borrow stays the same for the term of your mortgage. If you have one of these loans, you will need to repay it when your agreement comes to an end. You can do this by taking out a pension or endowment policy that enables you to build up a fund to repay the original loan. Another option is to sell the property and use the proceeds to pay back your mortgage. Bear in mind that these loans are not available to all applicants. Also, if property prices do not rise sufficiently or your fund fails to grow to the required level, you may not have enough money to repay your mortgage.
You should also be aware of deferred start mortgages. These agreements allow you to put back your repayments for a number of months and they can be useful if you need extra money to make home improvements and cover the costs of moving to a new property. However, bear in mind that lenders will charge you interest for these months, meaning the balance of your loan will rise before you start making any repayments.
Another type of flexible agreement is one that incorporates payment holidays. Some lenders may permit you to repay your mortgage over 10 or 11 months each year, rather than the full 12. This can provide you with extra leeway during expensive months, like December. However, your remaining repayments will be higher in order to make up for the missed months.
TAKE ADVANTAGE OF THE ADVICE ON OFFER
Because of the sheer amount of information you need to take in when you’re getting your first mortgage, and the range of options you face, it can pay off to enlist the help of experts. By using the services of brokers or independent financial advisers, you can take some of the stress and hassle out of the process.
It’s also worth speaking to your existing bank or building society, as they know you and your finances. Their advice should be free, and it’s worth seeing how their products compare to the others you find.
TAKE OUT SUITABLE INSURANCEAnother issue to consider when you’re taking out your first mortgage is insurance. Your lender will require you to have sufficient buildings insurance in place to cover the cost of a rebuild. However, you are not obliged to take these policies out with your lender. In fact, there is legislation in place guaranteeing you freedom to shop around for better deals.
Your lender will also require you to take out a mortgage protection policy. These policies pay out a capital sum that is just sufficient to repay the outstanding mortgage in the event that the policyholder were to die. This may not be a particularly cheery thought, but it’s important to be prepared. You have a number of options available when you are looking for mortgage protection so, as with your actual mortgage, you should seek advice before you make a decision on which provider to go with. Our mortgage protection quick quote calculator helps you to search the leading mortgage protection providers in one click. We search the top providers in Ireland so you don't have to.
What Constitutes A First-Time Buyer?
According to the official Central Bank of Ireland definition, a first-time buyer (FTB) is an individual who has never before, either by themselves or with others, purchased a house, apartment, or a site to build a home, in Ireland or abroad. When it comes to applying this definition to the sale and purchase of mortgages, a FTB is, “a borrower to whom no housing loan has ever before been advanced”.
But why is this distinction so important? Well, traditionally in Ireland, there were significant tax advantages of being a FTB - stamp duty was not required to be paid and a ‘tax relief source’ (TRS) on first-time mortgage interest was provided. However, TRS was abolished in 2012 and stamp duty rates were introduced in 2010 for FTBs.
That being said, there are still a number of key differences between FTB and Second and subsequent borrowers (SSB) that make this definition necessary. Firstly, FTBs only require a deposit of 10 percent of a property’s purchase price, while SSBs typically need a minimum deposit of 20 per cent. Secondly, FTBs can take advantage of the Help to Buy rebate. This scheme is designed to aid FTBs in obtaining their deposit by providing a refund on income tax and deposit interest retention tax.
Can I Get A First-Time Buyer Mortgage?
Specialist FTB mortgages are available that differ from the mortgages on the market for SSBs. As a rule, a mortgage to the value of up to 3.5 times your annual income is available for FTBs. For joint applicants, this figure is based on a combined gross income. As discussed above, unlike SSBs that require a 20 per cent deposit in order to secure a mortgage, FTBs can borrow up to 90 per cent of the property value, therefore only requiring a 10 per cent deposit.
How Do You Get Approved For A Mortgage?
For the vast majority of people, before you can purchase a house you first need mortgage approval. At this point, it’s worth remembering that a mortgage is a long-term commitment between yourself and a bank - one that can last as long as 35 years - so you need to be certain that you have thought everything over properly and are personally ready for such a big commitment. Once you have decided that you’re ready, you need to prepare for mortgage approval. The process of getting yourself ready to apply for a mortgage can often take a few years and involves putting money aside to save for a deposit, paying off any other personal loans or credit card debts and generally working on managing your finances in a way that will pass the scrutiny of a bank’s lending officer.
Although FTBs do enjoy the benefits provided as part of the Help to Buy rebate incentive scheme, as well as lower deposit requirements, in order to secure a FTB mortgage, the key principles of mortgage approval still apply. These are:
- Your income should be secure - bear in mind that if you are a joint applicant, the incomes of both you and your partner need to be judged as secure.
- You have the correct cash deposit available - as a FTB, a 10 per cent deposit is required. For example, if the house you want to purchase costs €250,000, a cash deposit of €25,000 is needed. It is also important to remember that money for stamp duty and legal fees is required.
- You can supply acceptable evidence of affordability - this will be examined by your mortgage provider to ensure you can afford the repayments attached to the mortgage you have been offered, and can include a detailed analysis of your recent spending and savings patterns and rent payments.
- You have a good credit history and rating - your credit rating is based on your historic ability to repay loans. A well-managed financial history, with no loan or credit card debt, will mean you have a strong credit history. This in turn should make it easier for you to be approved for a mortgage.
What Is The Best Day To Move House?
Although, on the face of it, the best day to move house is completely subjective and depends on your own personal circumstances, Friday tends to be the most popular moving day. Providing a gateway to the weekend, booking a Friday off work to complete your move allows for three consecutive days to deal with any unplanned issues, unpack and generally start to get settled in your new home.
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