Working out what you can afford

First Time Buyers Guide To help you prepare for buying your first home we've put together a guide outlining the steps involved in the planning, searc...
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First Time Buyers Guide

To help you prepare for buying your first home we've put together a guide outlining the steps involved in the planning, search, buying and moving in process.

1/ Planning ahead Planning ahead will help you make progress towards your goals and show lenders that you are prepared, which could make it easier for you to get a mortgage.

Key Steps:

A. Build up a solid savings balance - 100% mortgages are no longer available and so savings are important. A good savings history will make your application more appealing to mortgage lenders and will no doubt come in handy with the deposit. If you do not have any savings then maybe a family member could help you out with the deposit.   B. Cut your borrowing - Most lenders work out how much you can borrow based on your outgoings as well as your income. Reducing your outgoings, car loans, credit cards ect, will give you more to spend on your home. And as you pay off any borrowing, it will become easier for you to save.   C. Polish up your credit record - Lenders will look at different things but in general it will help if you have a good credit rating. You need to pay your outgoings, rent, credit cards and loans ect, by direct debit if possible and try to keep your bank account in good order. You can check your credit rating with the Irish Credit Bureau at www.icb.ie

D. You will also need to show that you have the repayment capacity to repay a mortgage. This basically means that in the 6 months prior to applying for mortgage approval you will need to show a consistent repayment record. You can do this by paying your rent or savings through your bank account. You can see an explanation of repayment capacity by checking out this article in our blog

2/ Working out what you can afford Before you start looking for a place to buy, you need to work out exactly what you can afford. This will help you to plan / narrow down your search and to make sure you are not going to

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overstretch your budget.

Planning your monthly budget

A. Work out what your monthly outgoings are likely to be once you own your home.   B. Take this away from your income.   C. Note the money you have left for monthly mortgage payments.   D. Take this into account when calculating what type and size of mortgage you want. At this stage you may want to use our mortgage calculators to get an idea of what banks will let you borrow and what your monthly mortgage repayments may be.   E. Have a good idea of the most you want to spend - a price ceiling. This will help when searching for your new home. Do not let Estate Agents know what you can afford, they will always try to get you to pay as much as they can as they work for the seller.

TOP TIP Never get your mortgage approved with an Estate Agent or a Mortgage Broker that is associated with an Estate Agent. If you do you might end up paying over the odds. The Estate Agent is selling the house and so will try to push up the price if he knows you can afford more.

Speak to your MortgageLine Adviser if you need advice on what you can afford and the options available to you. You may be able to buy with someone else, use your family to help you out or rent a room.

3/ Understanding your mortgage There are lots of different mortgages on offer - and plenty of information and guidance to help you choose the one that suits you best. We've explained the basics to get you started.

Learning the language - mortgages

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First Time Buyers Guide

A mortgage uses your property as security for a loan. This is why a mortgage is cheaper than other types of loan. However if you don't keep up repayments on the mortgage, the lender can go to court for a possession order to repossess your home.

How does a mortgage work?

A mortgage has two parts:

- Capital - the money that is borrowed

- Interest - the charge made by the lender until the loan is paid back.

How do I choose the right mortgage?

There are two initial decisions to make when you choose a mortgage - how you want to repay the loan and what type of mortgage suits you best.

How do you want to repay the loan?

There are two main ways to borrow money for a home - an 'interest-only' mortgage or a 'repayment' mortgage.

With an interest only mortgage, you only pay the interest on the amount you borrowed each month. This means that at the end of the mortgage term you will still owe the same amount you borrowed, so you�ll need to plan how to pay this off. In recent years a lot of First Time Buyers have taken their mortgage interest only for the first 1 to 3 years to keep their repayments down

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at the start.

With a repayment mortgage, you pay off part of the capital each month, as well as the interest. This guarantees that your mortgage will be repaid in full at the end of the term, as long as you keep up the repayments. This is the most common choice for borrowers purchasing their family home.

What type of mortgage suits you best?

Every lender has a different range of mortgages. These are the most common options:

Standard variable - Most lenders offer a standard variable mortgage rate, which can move up or down at their discretion, but normally only when the European Central Bank Rate changes.

Fixed - A fixed rate can help you budget, because the interest rate you pay - and your monthly payment - will be fixed until a set date. This means you will know exactly how much you will need to pay each month.

Capped - These mortgages guarantee that your interest rate - and your monthly payment - will never go above a set figure within the capped-rate period. Below that set figure, the rate will move up and down in line with the lender�s standard variable or tracker rate.

Discount - This type of mortgage gives you a discount off a Variable rate for a specified period, normally 1 to 2 years. Your rate will move up and down to correspond with your lenders variable rate. Discounted rates can help to keep your payments down at the start of your mortgage.

Tracker - Tracker rates are unfortunately no longer available from any Irish Banks to new customers and so there is no point going into the nitty gritty of them other than to say they are a great deal for anyone who has one.

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Speak to your own dedicated MortgageLine advisor to discuss your options.

4/ Searching for the right place When you are choosing a new home there's a lot to think about - where you want to live, how much space you need and how much DIY you are prepared to do are just some of the decisions you'll have to make.

A. Create a Viewing Checklist of what you're looking for. Here are some of the things to think about - break them down into 'definite wants' and 'wishes'. You'll need to decide on the most important ones before you start looking, but be prepared to be flexible. Ask yourself:

What kind of home do you want?

- A house, flat or studio, - number of bedrooms, - new or old property, - perfect condition or in need of work, - home office or children's playroom, - car park or a garage, - garden or terrace.

What about the location?

- How easy will it be for you to get to work? - how close are the shops? - what are the local schools like? - what is the crime rate?   B. Get an idea of what's available. Look at as many properties as possible to get an idea of what you like and how the prices compare.  

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First Time Buyers Guide

C. Look in local newspapers and search online. - The best website for property buyers is  www.daft.ie

Tips: When looking at properties, take someone with you as they may pick up things you miss and you can discuss it with them later on. Have a second viewing at a different time on another day.   D. Consider the following key points if you are buying a brand new home:

- The plans and room sizes as these may be smaller than the showroom, - Small print in the developer's specification, to check the finishes are what you want, - Availability of a warranty such as Home Bond or Premier Guarantee.

Timing Tip:

MortgageLine can help you appoint a solicitor while you are looking for a property to help things move faster when you find somewhere you like. Your MortgageLine solicitor will guide you through the legal process and speak to the seller's solicitor on your behalf. Your MortgageLine solicitor will also save you €1,000's with their set fee of €995 + Vat + Outlay.

5/ Making an Offer When you are sure you have found the right place, it's time to make an offer. This is a big step and you want to make sure you are ready. Having answers to the following questions will make it easier for you.

Key Steps:

A. Checklist

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- What is the maximum amount you can spend? - What percentage mortgage is required? - Is the mortgage pre-arranged? - What is your timespan for the move? - How much are you willing to offer and how much you are willing to negotiate? - Which fixtures and fittings are included in the sale?

Tips:

- Talk to the estate agent to find out as much as possible, for example whether the seller wants to move quickly. - Remember, estate agents work for the seller and is trying to get the best deal for them rather than you.

B. Making the offer

- Get in touch with the seller's estate agent and tell them how much you would like to offer. - If they don't accept, you can increase the offer, but make sure it's within your budget.

C. Pay the Booking Deposit

It is common practice to pay a booking deposit of approx 3 to 5 thousand euro once you offer has been accepted. The booking deposit is to show that you are serious but is fully refundable if you change your mind within say 3 weeks. Check this with the Estate Agent. You should give the

Estate Agent your solicitor details at this stage.

Tips:

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- Consider getting a survey done. - Finalise your mortgage details.

6/ The Legal process and paperwork The legal work to transfer a property is called conveyancing. If you are buying a property with a mortgage you will have to have a solicitor to do this for you. MortgageLine can help you choose a local reputable solicitor.

Your solicitor will guide you through the process and speak to the seller's solicitor - and make sure you understand the details. If you are not sure about something make sure you ask your solicitor to explain.

Starting the legal process

A. It's up to you to liaise with your solicitor and make sure you are happy with the contract before you exchange so keep track of what your solicitor is doing.

B. Get a survey

- Check the building is sound. Your mortgage lender will request a standard valuation but this is just to check the value of the property - Unless you are buying a new home, it makes good sense to pay a little extra for a more detailed survey. - If you want work done before the sale goes through, or you want to negotiate a reduction in price, ask your solicitor to negotiate this with the seller's solicitor and estate agent.

C. Acceptance of the Contract

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- Once you are happy with the property and your mortgage is fully approved you will sign contracts. At this stage the seller's solicitor will normally look for 10% of the purchase price (minus the booking deposit that you will have already paid) - When you exchange contracts, you make a financial and legal commitment to purchase the property.

7/ Completing and Moving in This is the last stage in the legal process. Your solicitor will liaise with the sellers solicitor and confirm a completion date, this is when you get the keys to your new home. Once completed, you legally own your new home and can move in.

Preparing for completion

Ask your solicitor what you need to do and when. Your solicitor will:

- Make the final arrangements for payment, including drawing down the mortgage money for you. - Prepare final accounts for you including details of any further money needed from you to complete.

Tip:

Don't let the solicitor draw down the mortgage too early. Most mortgage lenders will start charging you interest from when the mortgage is drawn down, not from when you get the keys.

With all the paperwork out of the way, it's time to move into your new home.

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