How to get a mortgage
5 MIN READ
Shane Cullen is a mobile mortgage manager for Bank of Ireland.
He speaks to first-time buyers all the time answering their frequently asked questions ranging from ‘what do and don’t mortgage lenders want to see on bank statements’ to ‘what does an ideal candidate for a mortgage look like’?
He recently appeared on episode 1 of ‘The Home Stretch’, a six-episode podcast about buying your first home from Bank of Ireland and Gaff Interiors**.
Jo Linehan and Caroline Foran quizzed him with their first-time buyer queries.
Here’s a summary of his replies.
What you need to do when applying for a mortgage
1. Make sure you fully understand the mortgage application process
2. Check the Central Bank’s ‘loan to income limit’
3. Get proof (rent payments, savings) that you can comfortably repay your mortgage
4. Keep your account in credit with no unpaid direct debits etc
5. Gather at least 6 months of bank statements
6. Avoid changing jobs as new jobs often have a 6-month probationary period
7. Start saving towards the deposit (10% of purchase price for first-time buyers)
8. For a ‘fixer-upper’, you need to save the cost of the work as well as the deposit
What is the very first thing that someone looking to buy a home needs to do?
‘The very first thing is sit down and have a chat with somebody.
‘All too often,’ says Shane, ‘I meet with customers who already have their perfect home picked out but they haven’t taken any of the steps they need to get mortgage-ready.’
Shane explains what a mobile mortgage manager does to help busy mortgage applicants.
‘We’ll come out and meet you at a place and time that suits you,’ he says.
‘I’ll meet you for a cup of coffee at your house or place of work.
Whatever suits you best. In the morning or the evening.’
That even includes weekends.
So people can contact you and you will come out to meet them?
‘You can contact me on LinkedIn‘, says Shane.
‘There’s also a number you can text (text MMM to 50365) and we will arrange to call you back.’
Where do you end up meeting people?
‘In hotels, in coffee shops,’ he says.
‘The average person, I think they feel most comfortable in their own home having a chat with someone.
So it’s after they’ve put the kids to bed and the dinner’s done.
I’ll come out and sit down and go through everything with them.’
What’s the first thing you’re going to bring up when you meet them?
‘The first thing I ask you is about your background, your family situation.
Are you married? How many kids you have.
And then we’ll go into your employment.
What your current role is. Whether it’s permanent or contract work.
And then what your income is.
What we can lend you is going to be based on what you earn,’ says Shane.
The Central Bank Loan-To-Income limit** restricts the amount of money you can borrow to a maximum of 3.5 times your gross income (before tax).
What do you mean by income?
‘Your income is your basic pay,’ he says.
‘If you get bonuses and you’ve been getting them regularly for 3 years, we can take them into account.
If you regularly get commission, overtime, that type of thing, we can take it into account.
Then we need to see that you’ve proven that you can repay your mortgage.’
What proof does he look for?
‘What you’ve been putting into savings and your rent – that type of thing.’
Shane says that he will look for bank statements to back all of this up.
Are there anything you don’t want to see on bank statements?
‘There’s a few myths around this,’ Shane says.
‘People are entitled to live their lives and spend their money as they want to.’
What the bank is concerned about, he says, is that potential mortgage customers can meet their future mortgage repayments as well as funding their lifestyle.
‘If you are putting money aside each month into your rent and savings and it at least meets your mortgage repayment, then you’re entitled to spend money on what you like.
The main thing is that you are not putting any stress on your account, your account is constantly kept in credit, there’s no unpaid direct debits or standing orders – that type of thing,’ he says.
What about gambling?
‘If there’s one or two in a 6-month period and it was during Cheltenham and you weren’t up to the limit on your account at the time it can be fine.
But if it’s a constant thing each month and it’s taking you overdrawn on your account, it’s a big no-no,’ Shane says.
How many months of bank statements do first-time buyers have to provide?
‘It’s the last 6 months’ bank statements for a full-time employed person,’ Shane says.
‘For a self-employed person, we look for the last 12 months of their business account statements plus the last 6 months of their current account statements and the last 2 years company accounts.’
What if you move jobs when you’re applying for a mortgage?
‘It’s not ideal,’ he says.
‘You’d never be advising somebody to move jobs if they are in the middle of the mortgage process.’
The reason for that is that new jobs often have a 6-month probationary period that new hires have to work before their job is confirmed.
‘That probationary period needs to be completed, before we will give you a mortgage,’ Shane says.
There are exceptions to the rule but only a few.
‘You’d need to have a really strong educational background and employment history, and it would need to a job in which there was a clear increase in salary.’
Is there an ‘ideal candidate’ for a mortgage?
Shane describes the ‘ideal candidate’ as, ‘somebody who is keeping their current account in credit’.
‘Ideally, they’ll have set up a savings account, there’s a set amount going out each month into it and they’re not touching it.’
Bank of Ireland offers a Mortgagesaver account specifically for first-time buyers which provides a bonus when you draw down a mortgage (subject to DIRT)*.
But with rents so high it’s almost impossible to pay rent and save
He says that the bank understands the way the rental market is at the moment.
‘For example,’ he says, ‘your mortgage repayment might only be €1,200 a month but you might be paying, between yourself and your partner, €1,800 -1,900 a month in rent right now.’
Obviously, in that situation, your rent is significantly more than what your mortgage repayment might be.
But Shane says that first-time buyers should not worry if they cannot save significant amounts because, in this case, they are ‘showing a clear repayment capacity for a mortgage’ simply by paying their rent.
What about being gifted a deposit?
‘If you don’t have the savings built up,’ he says, ‘but you’ve demonstrated repayment capacity through your rent then it’s fine to use a gift as a deposit.
The more you can put into the purchase yourself, the lower the risk for the bank – it makes it a stronger application,’ he says.
How much deposit do first-time buyers need to provide?
The Central Bank Loan-To-Value limit** means you must have a minimum deposit before you can get a mortgage.
‘For first-time buyers, the minimum deposit they need to put in is 10% of the purchase price,’ Shane says.
‘We can lend first-time buyers 90% of the purchase price.’
10% is the minimum that first-time buyers need to provide, ‘but if you want to put in more that’s fine,’ Shane says.
The more you bring down the Loan-To-Value of the home, the lower the risk to the bank so it makes it a stronger application.
Do you need to have the money for fixing up the house as well as the deposit?
If you are buying a fixer-upper, then you need to have the money saved for the works as well as the deposit.
But, because building work can take longer and cost more than expected, you need to allow for that.
‘You need to have at least 10% of the cost of the work, upfront,’ says Shane, ‘as a contingency.’
‘For example, if you are looking to do €60-70,000 worth of work you need to have another €6-7,000 just in case.’
If the value of the property will increase after the work is completed, you can include the cost of the work in the mortgage amount when you apply.
For people buying on their own, are there different criteria?
‘It’s still 3.5 times your income,’ Shane says of the Central Bank’s Loan-To-Income limit**. ‘You still have to put in 10% deposit if you are a first-time buyer.
‘So it does tend to be more difficult for first-time buyers buying on their own.’
What is ‘Approval in Principle’?
‘That’s the bank saying for the next 6 months we’re willing to lend you X amount of money subject to you maintaining everything as you go along.’
But Shane says that first-time buyers shouldn’t take their eye off their finances after they get Approval in Principle.
They still need to make sure that they keep their accounts in credit and avoid any unpaid direct debits and standing orders etc.
There’s a good reason for this.
‘It can take longer than 6 months to find a house,’ Shane says. ‘If you go past the 6 months, you’ll have to come in to me again.
I’ll need to confirm that you’re in the same job on the same income and you have been showing the same repayment capacity for the last 6 months.
It’s a very awkward conversation, if somebody comes back to me in 6 months’ time and they haven’t been showing repayment capacity.’
Find out more
Find out more from Shane by listening to the whole of Episode 1 of ‘The Home Stretch’
You can find all 6 episodes of The Home Stretch now on major platforms:
*Available for first time buyers only who draw down a mortgage with Bank of Ireland Group within 30 months of MortgageSaver account opening. MortgageSaver provided by Bank of Ireland. Bonus Interest subject to DIRT at the prevailing rate, paid after drawdown. Details at bankofireland.com/mortgagesaver. Terms and conditions apply.
**Clicking on this link brings you to a third-party website. Bank of Ireland is not responsible for content on this website.
All efforts were made to ensure that the information in this article was accurate at the time of original publication. The content of this article do not constitute financial advice.
Bank of Ireland is regulated by the Central Bank of Ireland.
The lender is Bank of Ireland Mortgages. Lending criteria and terms and conditions apply. Over 18s only. Mortgage approval is subject to assessment of suitability and affordability. A typical mortgage to buy your home of €100,000 over 20 years with 240 monthly instalments costs €615.79 per month at 4.2% variable (Annual Percentage Rate of Charge (APRC) 4.3%). APRC includes €150 valuation fee and mortgage charge of €175 paid to the Property Registration Authority. The total amount you pay is €148,114.60. We require property and life insurance. You mortgage your home to secure the loan. Maximum loan is generally 3.5 times gross annual income and 80% of the property value (90% of the property value for first-time buyers). A 1% interest rate rise would increase monthly repayments by €54.02 per month. The cost of your monthly repayments may increase – if you do not keep up your repayments you may lose your home. Bank of Ireland Mortgage Bank is not responsible for information on third party websites.