Introduction
Before you start researching the property market in search of your new home, if you’re a first time buyer, moving or trading up, a self-build or a re-mortgage, you should first seek Approval in Principle (AIP) from a lender. Once AIP has been given by the lender, it gives you more of an idea of how much you can borrow, also putting you in a position to act quickly and make an offer if a suitable property comes up. Most sellers and Estate Agents are more likely to accept an offer once you have Mortgage Approval in Principle in place. Once you have received your Mortgage Approval in Principle from your lender, it is typically valid for 6 months before having to go through the whole application process again.
Seeking Mortgage Approval in Principle – Lender vs. Broker
You have two choices in seeking your Mortgage Approval in Principle:
- Applying directly to a bank or Credit Union and dealing with them and mostly looking after the application process yourself.
- Using a Mortgage Broker like us here at Ezfees Financial Mortgage & Life Brokers, we deal with the lenders on your behalf. Brokers generally have a number of options in terms of choosing from a multiple of lenders, finding you the best deal, the most suitable mortgage and assisting you throughout the process.
How Much Can I Borrow? How Much of a Deposit Will I Need?
There are two types of limits:
- Loan-to-value (LTV) is based on the size of the loan as a % of the value of the home you wish to buy.
- Loan-to-income (LTI) is based on the size of the loan vs the income(s) of the borrower(s).
New rules introduced from the Central Bank and in effect from January 2023 state that first-time buyers (FTB) will be able to borrow up to 4 times their gross income. Second and subsequent buyers will continue to be able to borrow up to 3.5 times their gross income.
The Loan-to-value limit (LTV) requires you to have a minimum deposit before you can get a mortgage. First-time buyers and second/subsequent buyers need to have a minimum deposit of 10% meaning you can borrow 90% of the value of the property. If you’re buying a property to rent you will need a minimum deposit of 30%.
What Do Lenders Base Their Decision On?
- Employment: are you in temporary or full-time employment. Lenders will look at your Income, some may take into account overtime & bonuses.
- Age: what age will you be when you retire and/ or when the mortgage ends.
- Number of applicants: are you borrowing by yourself or with someone else.
- Loans: if you have other outstanding loans, have you a high credit card balance.
- Other outgoings: other financial commitments/such as childcare for example.
- Your money management: i.e. bank statements, ability to meet direct debits any standing orders, if you’re using an overdraft facility on a regular basis, excessive use of online gambling etc.
- Savings: have you saved enough for a deposit, your ability to save a set amount of money on a regular basis.
- Your credit history: this shows your track record of paying loans in the past. A poor credit history can prevent you from getting a mortgage.
Application – Approval in Principle
An approval in Principle from a Lender will come in the form of a detailed letter stating the amount they are happy to lend and over what term. This letter is valid for 6 months and within that time you would ideally find your dream home and go to the next stage which is Letter of Offer. This Letter of Offer is the legal contract between yourself and the Bank regarding the home you have found and wish to buy. This Letter of Offer lasts for 6 months meaning you have 6 months to draw down the mortgage from the Bank and get your keys!
Conclusion
At Ezfees Financial, we understand that getting mortgage ready and going through the whole application process can be daunting and overwhelming. That’s why we are here to help, from application to getting your keys for your new home, we’re with you every step of the way. Call us on 0818 910800 or email us at info@ezfeesfinancial.ie to begin your journey. We’d be delighted to hear from you!
