BEEN HAVING A snoop around Daft for what 3.5 times your salary could potentially buy you in your favourite area, or are you already on first-name terms with your mortgage advisor?
No matter where you are in the process, the more information you’re armed with ahead of getting mortgage approval, the better. And there is a lot of misinformation out there – from whether that yearly bet on the Grand National will impact to whether you should worry about your online shopping habits.
“The first thing is that it’s important that people still have a life ahead of getting mortgage approval”, shares Conor McGowan, head of mortgages at KBC. “The best way to do that is to show you’re able to live within your means.”
Getting a mortgage can be stressful, so here are a few things he says that you don’t need to worry about.
Aside from the changes you might need to make when saving for your deposit, it’s actually important to keep up your regular expenditure: “You’ve got to be able to live your life”, says McGowan. He adds that this can include online shopping, regular grocery costs, getting a coffee on the way to work and using your credit card in a restaurant (as long as you pay it off on time). McGowan has heard of couples living on cash for the month, which is absolutely not necessary – banks expect you to have expenses.
McGowan reminds that banks simply want to know that you’ll be capable of paying off your mortgage repayments each month, taking your regular expenditure into account. The best way of showing this? “Paying rent, saving regularly and showing ability to pay off any debts you have.” And if you’ve costs for say, your wedding – that’s OK too, “as long as your expenditure can be explained and you’re up front with the bank”.
Some people have an idea that to get a mortgage, you need to be able to ‘prove’ that you’ve paid back a previous debt – so that never having been in debt can actually be a disadvantage when applying for a mortgage.
This is something McGowan has seen first hand. “In the first time buyers space, sometimes people have no debt at all – so they go and get a Credit Union loan to prove they can pay it back,” he says.
But this is very much a myth. Never having taken out a significant loan should not put you at a disadvantage when it comes to getting a mortgage, and is certainly not something you need to “correct”, he says.
Although you can still use your credit card for renting a car or booking a holiday, common sense prevails, says McGowan: “If you’re not paying your credit card bill in full every month, it could be a sign that you’re struggling towards the end of the month”.
In particular, avoid using your credit card at the ATM – not only is it more expensive, it could indicate that you have a short-term cash flow problem “which can send up red flags”.
When you apply for a mortgage, the bank will look through the last six months in particular, and when things change dramatically, that can be a red flag. Though “good habits say a lot more – not being in constantly overdraft for instance”. But if there are regular charges, it can be a bad sign for banks:
If you’re consistently being charged for missed direct debits or standing orders, it shows that you’re not managing your finances in a way that means you’re capable of looking after a mortgage.
Sometimes this can just be a matter of moving the date of a direct debit or bill (until a few days after you’re paid rather than pay day itself, for example). “If something is explainable we’ll get around it.”
Although this might be as much an issue for your estate agent as it is for the bank you choose, approval in principle (AIP) will give you a major advantage when shopping around and putting in an offer. McGowan explains: “It’s massive – if you and I are both going after the same house and you have AIP, you’re in a much better position.”
Having AIP means that you both have access to the funds to buy the property, the ability to repay and the deposit for the amount you want to spend on a property, says McGowan. He advises to look out for one that is fully underwritten (KBC offer this), which is “the closest you’ll get to a loan offer”.
The opposite is a “soft AIP”, and may not take into account other things such as outstanding debt and childcare costs – which may delay the process.
Once you do get approval in principle, you won’t need to change your spending habits. But it is important that if you can, you avoid taking out any other loans during that time as it will show up on your Credit Bureau report. “You don’t want to be changing your circumstances hugely”, says McGowan.
That being said, banks are aware that life happens and sometimes cars break down or you may have an unexpected cost. In this case, engagement with your bank is key: “Things will always come up, just pick up the phone and say look this has happened, what does this mean for me? If you keep talking, everything should be OK”. He adds: “It’s very important to stay engaged.”
Currently self-employed and worried about your chances getting approval on a new home? It doesn’t make you any less likely to be able to get one, says McGowan: “It’s different but it’s not difficult – the main thing is just that we need a bit more documentation.” While PAYE employees can just use their P60, you’ll have to provide tax certs and financial accounts for the last two years.
“Ultimately it comes down to your ability to repay what you borrow”, says McGowan. “Once you ensure your paperwork is in order – you can get an accountant to help – there shouldn’t be an issue at all”. His best advice? Get involved early – drop into a hub or pick up the phone and ask them exactly what you need.
Find out how much you could borrow and what your repayments would be with the handy KBC mortgage calculator.
Find your nearest KBC hub or chat to us today.
Lending Criteria, Terms & Conditions Apply. Security and Insurance are required. The maximum mortgage balance is 90% of the property value. Max loan amount will typically not exceed 3.5 times an individual’s gross annual income. KBC Bank Ireland plc is regulated by the Central Bank of Ireland.
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