Keys at Prosperous

When applying for a mortgage, you can either go through a broker or apply directly to a lender.  

A broker can determine what lenders have the best rates and offers for your specific circumstances. Using a mortgage broker can also save you time and money as the process will be more efficient than applying directly to multiple lenders. As your mortgage partner, your Prosperous Mortgage Advisor will be at hand to answer any queries you may have and to support you through your home buying journey and beyond.

Before being able to make an offer on a property, you’ll need approval in principle (AIP). This is a letter from your mortgage lender indicating the amount they could lend you, based on the information you provide. However, having AIP doesn’t mean that you have mortgage approval  – it is simply an indication to lend and is not legally binding. To turn your AIP into formal mortgage approval (also know as letter of offer), you need to find a property, get a valuation carried out and meet the AIP conditions noted in your AIP letter. Provided there are no issues, and all of the information is correct, it’s unlikely your mortgage offer should differ from the AIP amount. 

It’s best to get AIP early on in your property journey, as estate agents will look for this as proof that you can afford to purchase a property. It usually lasts six months but it can be extended if you haven’t found the property you wish to purchase within that time frame.  

The two main rules the Central Bank has in place are as follows:

Loan-to-income limit first-time buyers can borrow up to a maximum of 4 times your gross income, or combined annual income if purchasing with a partner. For second-time and subsequent buyers, you can borrow up to a maximum of 3.5 times your gross income. Some variable income, such as allowances, commission and bonus, can be taken into consideration. Mortgage lenders have some discretion to make exceptions to these rules.   

Loan-to-value ratio The loan-to-value (LTV) ratio refers to the percentage of the property’s value that you can borrow and how much you are required to pay upfront in the form of a deposit. The maximum LTV a mortgage lender will approve is 90%. Therefore first-time buyers and second and subsequent buyers need to have a minimum deposit of 10%.  Bear in mind that for second-time buyers, this 10% deposit can take the form of equity from selling your existing house. This does not need to be made up of new cash and can be useful if your existing house has increased in value while your mortgage has reduced through repayments. Lenders can also make exceptions to these rules in some cases.  

Lenders will consider several factors when assessing your mortgage. The three main things they’ll look at are: 

Income: Lenders will look at your annual income to ensure you can afford the mortgage repayment. They may also take bonuses and overtime into consideration. 

Deposit: usually a 10% deposit will be required along with funds to pay for stamp duty (usually 1% of the purchase price), legal fees and other outlays. The mortgage lender will look for evidence the source of the deposits whether it’s from savings or has been gifted.  A First time buyer may be eligible for Help to Buy

Repayment Capacity: You need to demonstrate the ability to repay the proposed mortgage through savings, rent payments and/or discontinuing loan repayments or a combination of these. 

When applying for a mortgage, most lenders will look for information in relation to your income, employment status, existing loans and spending habits. This helps them to determine whether you can be relied on to pay back the loan. 

The required documents may vary from lender to lender but usually, you’ll be asked for the following: 

• Proof of income: If you’re a PAYE employee, you will usually need to provide payslips for the previous three months, last year’s Employment Detail Summary (available from Revenue) along with an employee status report (salary certificate) completed and stamped by your employer. 
  If you’re self-employed you’ll need to provide certified accounts, likely for the previous two or three years, and a copy of tax returns from the previous two years. 
• Proof of repayment ability:  You’ll be required to provide the lender with all bank account statements for the previous six months. 
• Evidence of Deposit: savings accounts statements, gift letters and/or Help to Buy Approval
• Proof of ID and proof of address: Usually these can be in the form of a current valid passport or current driving licence and a recent utility bill.