Whether it is Halloween or not, too many horror stories do the rounds on how to get a mortgage.
We’re here to cut through the #fakenews and hysterics, and to break down the mortgage process for you into easily understandable steps.
The fact is that banks are definitely open for business. There’s an appetite to lend to people seeking all types of mortgages. (For more information on the different types of mortgages people can qualify for, take a look at our mortgage calculators page.)
Now, there are serious credit and approval processes in place that any mortgage applicant will have to go through to secure a loan. But these processes needn’t be confusing or stressful if you go through them step by step. We’ll show you how.
Preparation is key for a mortgage application
For most of us, applying for a mortgage is one of the biggest financial undertakings of our lives. Maybe even the biggest.
That doesn’t mean that it needs to be an overwhelming experience. With some preparation, arranging a mortgage can go from being a stressful experience to being an empowering one.
In fact, preparation is the key to making your whole mortgage application experience run so much smoother than you expect. Expect to begin your mortgage preparations months in advance and you’ll give yourself the strongest start possible.
There are many different mortgage products on the market. The Irish market has nine lenders offering more than 250 mortgages. Therefore, the power is in your pocket as a consumer to find the mortgage that works best for you. (And, of course, we’re here to help you all the way!)
So how many months exactly do you need to get your preparations in order? We’d advise a minimum of three months. If you can give yourself six months to a year, even better.
Get your finances in order
The most compelling reason for giving yourself as much time as possible before you apply for your mortgage is to get your finances in order.
We all live in the real world, and we are all guilty of a financial misstep here and there. In general, there’s no need to be overly worried about a money mistake you may have made.
That said, however, not all financial mistakes are equal. It’s helpful to face up to the kind of items on your bank statement that might be considered as problematic for a lender. Once you know what counts as a “red flag” in their eyes, you can do a lot to reduce or eliminate the problem from your financial footprint.
Keep in mind that the lender is trying to make a decision on how strong your ability is to repay the mortgage you’re applying for. The only way that they can make an informed decision is by looking at your financial activities to date.
Items that count as problematic for lenders include:
- Always being in overdraft (whether it is an authorised overdraft or not)
- Evidence of online gambling
- Drawing cash on your credit card
- Not being able to provide evidence (e.g. receipts, statements) for bills (e.g. rent)
- Sporadic savings habit
- Irregular spending habits
- Low credit rating
If you are worried that some of these “red flags” might appear on your statements, follow the steps below to overcome any problems:
- Pay your rent through your bank account. Having a rent payment reflect on your bank statement goes a long way to convincing a bank to lend to you.
- Stay out of your overdraft as much as possible. Using your overdraft on a regular basis indicates that you are living beyond your means.
- Eliminate credit card debt and then clear your balance each month.
- Pay your loan repayments on time.
- Keep your savings in one account and save a set amount every month. Don’t withdraw funds from this amount.
Maximise savings over time
Another strong reason to give yourself as much time as possible is to save up for a deposit.
We go into a lot of detail in our blog post on how to save for a mortgage. Suffice to say, every €1 you save for your deposit will increase the strength of your mortgage application.
When it comes to employment, time also helps ensure things stay in your favour.
If you’re a person in full-time employment, banks will count that as a plus. The longer you’re with an employer (i.e. you’ve completed your probation), the more you look like a robust and safe candidate for a mortgage.
Don’t feel like you don’t stand a chance if you’re self-employed or a contract worker. Banks are aware that more and more of the workforce is joining the freelance economy. As such, banks are still interested in looking at your mortgage application but you need all of your ducks in a row. The ducks in this case being P60s, P45s, tax returns and accounts.
Essential paperwork for a mortgage application
A big part of the preparation for a mortgage is getting all of the paperwork together. Our team at Which Mortgage can help you with this task (and we’re also doing all we can to move as much online as possible).
The following list provides a starting point for you to get your “application pack” together. You might be asked for other documents as your application progresses, but for now begin to compile:
- Photo ID
- Relevant P45s and P60s (From 2019 your employer is no longer required to provide you with a P60. This information is now available in your Employment Detail Summary in myAccount in the Revenue online system.)
- At least 3 months most recent payslips
- Certificate of Income (stamped by your employer)
- Six months worth of current account bank statements
- Six months worth of savings account bank statements
- Six months worth of credit card statements
- Any loan or mortgage statements (at least 12 months worth)