The most important investment many of us will make is in our home.
The cost of mortgage repayments is now similar to rental prices. With rent levels in some parts of Ireland now exceeding those in 2007, a mortgage is a good financial decision. You aren’t at the mercy of a landlord either and you could see the value of your property rise in the long term giving you a tax free gain.
The Deposit
From January 2017 the deposit you will need to save for a property is 10% for loans up to €220,000 and 20% for all loans above €220,000. You should always put down as much of a deposit as possible when buying your home. You will need a minimum of a 10% deposit but it is preferable to have more. Why? It will make you less vulnerable to movements in interest rates.
How much of a mortgage can I get?
Your ability to pay and obtain a mortgage will be based on your net disposable income (after tax, USC, PRSI and any existing loan repayments). You will also have to prove that after your existing expenditure (childcare, living costs etc) you still have the ability to pay the repayments on the proposed mortgage. You can find more on how much of a mortgage you can raise as a first time and second time buyer Here
I’m self employed will it be harder to get a mortgage?
It can be harder to get a mortgage if you have less than 3 years sets of accounts. Remember it is the net profit (after expenses but before tax) that lenders look at for borrowing eligibility. It is also necessary to get a statement for the bank from your accountant stating that your tax affairs are up to date.
What are the costs involved with buying your first home?
The costs connected with the home include; legal fees, insurance costs, stamp duty as well as furnishing the property, all of these costs need to be considered.
- Shop around for legal fees; as a guide you should not be paying more than 1-1.5% of the purchase price of the property in legal fees. Always agree a fee in writing with a solicitor before any work commences. The solicitor should provide you with an engagement letter which sets out the fee and when the fee is payable, along with other terms and conditions. While you are working with a solicitor it is also worthwhile setting up a will when you acquire the property.
- Stamp duty is 1% of the property price up to €1,000,000 and 2% of the property price for properties valued in excess of €1,000,000.
- A valuation will most likely be required also; the price of this may vary but will be in the region of €100-€150.
- There may also be land registry fees, search fees and arrangement fees.
- You will also need to look at prices for buildings insurance (compulsory if you have a mortgage), contents insurance and mortgage repayment insurance (this is optional but covers you in the event of illness or being made redundant).
- The lending institution may also require an engineer’s report of the property which you will have to pay for.
- You will need a life assurance policy that covers the value of the mortgage and ensures the debt is repaid in the event of your death or that of your spouse.
Another commonly forgotten cost is local property tax, this must be paid annually by residential property owners based on the market value of the property.
Loyalty doesn’t pay, by being loyal to your bank does not mean you’ll get a better service so do shop around for a mortgage and additional services. If you buy any additional services from your bank i.e. house insurance, life insurance etc make sure these are competitively priced. Many banks rely on customer inertia i.e. failure to ring around to find a better price.
What bank should I get the mortgage from?
Obtaining professional advice would be a great start. It is crucial that you choose the least expensive mortgage option available to you. The important message here is to shop around for the best mortgage. This website here lists and explains mortgage rates.
If you are time poor you may wish to engage the services of an independent mortgage adviser to shop around on your behalf. There are numerous mortgage lenders in Ireland, working with an adviser who is authorised by the Central Bank of Ireland to act on behalf of these lenders will ensure you get the best deal for you. The key message is don’t be complacent; even a small difference in the interest rate you pay can make a huge difference to the cost of your mortgage. Loyalty will get you nowhere, go where the best deal is for you.
Are there any supports available for first time buyers?
Help To Buy Scheme is a financial support for first time buyers. It provides a tax refund of up to €20,000 over 4 years to qualifying individuals. The refund can be claimed on new homes bought since 1.7.2016. A mortgage of 70% of the purchase price is required. The property must be occupied by the first time buyer for at least 5 years to avoid the rebate being clawed back. The new property needs to meet certain criteria. They are listed here
Overall
Choosing your mortgage provider is a big responsibility and one that should not be taken lightly. Some people spend more time choosing where they will go on holiday than on choosing their mortgage provider, even though your mortgage will have consequences for the next 20 to 30 years. Don’t fall into this trap. Pay attention to your finances at this stage to ensure you don’t end up paying more than you should be for your first home.