Taking out a mortgage is likely to be the biggest financial commitment you’ll ever make. And to improve your chances of a successful mortgage application, you’ll want to avoid these common mistakes as much as possible in the run-up to applying.
1. Not shopping around
Yes we know it might seem like an obvious point but when it comes to applying for a mortgage a lot of people are under the false assumption that you should apply with the bank that you have your current account with.
This is wrong.
When assessing your mortgage application a lender will mainly look at your income, your repayment capacity, your employment, and your credit history.
Who you have your current account with has absolutely no bearing on whether or not a lender will offer you a mortgage.
So compare the market and consider all lenders - even the ones whose names you may not be familiar with as they often offer the best value!
Your mortgage is likely to be your biggest monthly outgoing for years so it’s important to get the best deal for your particular circumstances.
The good news of course is that you can quickly and easily compare interest rates and offers across all lenders on bonkers.ie with our free mortgage calculator.
2. Going into an unauthorised overdraft
Showing your mortgage lender you can manage your money well is a key part of a successful mortgage application.
And while having an overdraft (and going into it) shouldn’t negatively affect your application, going into an unauthorised overdraft definitely will.
This is important to remember as sometimes your bank might allow you to go over your authorised limit without much warning (for a fee of course).
When applying for a mortgage, a lender will usually ask to see your most recent six months of current account statements, so stick within your limit and be extra good with your spending during this time at least - this applies to your credit card too of course.
3. Missing a bill payment
Following on from our third point, missing bills and being hit with a so-called referral fee or unpaid item fee is also something you want to avoid at all costs.
Again it’s about showing your lender you can manage your money.
A referral fee is when your bank goes to take a payment such as a direct debit or standing order from your account, and when paid, puts you into an unauthorised overdraft or negative balance. The charge with most banks is usually €5 per payment up to a maximum of €15 a day.
An unpaid item fee is when the direct debit or standing order isn’t paid at all and is returned. This charge can be as high as €10 or more per payment with some banks.
Avoid these fees at all costs - as well as being bad for your pocket, they will seriously hinder your mortgage application.
The same advice goes for missing any loan repayments.
4. Changing jobs right before applying for a mortgage
The days of long-term employment with the same employer are long gone and these days it’s common, indeed almost expected, for people to change jobs every few years.
Banks realise this and have relaxed their rules around the length of time you need to be with an employer before applying for a mortgage.
However your lender will want to see that you’ve at least passed your probation period before offering you a loan.
So this means your mortgage won’t be approved unless you've been in your current role for at least six months usually.
So don’t change jobs right before applying for a mortgage.
5. Not having enough money saved
You probably know that you need to have a deposit of at least 10% of the property price if you’re a first-time buyer and 20% if a second-time buyer.
However you also need to save up for things like stamp duty, solicitor’s fees, land registry fees, and surveyor’s fees too.
At a minimum your bank will want to see you have the money saved for the deposit and the stamp duty before they'll approve you for a mortgage.
However if you can also show you’ve the money already saved for all the other costs it’ll help considerably with your application.
6. Not being able to demonstrate repayment capacity
You need to be able to show your lender that you can afford your future mortgage repayments.
So let’s say you want to apply for a €300,000 mortgage over 30 years, which would cost just over €1,200 a month based on an interest rate of 2.60%, at a minimum you need to be able to show your lender that you have either been paying this amount in rent for the previous six months or saving this amount.
In most cases your lender will also stress test your application to see if you can cope with a future increase in mortgage interest rates. This means you should aim to be regularly saving or paying rent that’s equivalent to around 10% more than your future mortgage repayment.
Any money you’re saving should be on a regular monthly basis into an official savings account which you can easily show to your lender.
Randomly putting aside any excess money every second month or so won’t work. Your lender wants to see a good, clean, regular savings pattern.
If you’re back living at home with the parents to help you save and are paying them a small amount of rent each month, make sure you’re able to prove this. So pay your rent to your parents by regular bank transfer.
However, it’s important to highlight that rent is taken into account when proving repayment capacity. So if you’re currently paying rent of €2,000 a month for example, and your future mortgage is going to be €1,200 a month, you have easily passed the repayment capacity test.
7. Taking on new debt
Taking out a new loan before applying for a mortgage isn’t necessarily bad - particularly if it’s for something important like a car. However it can impact how much you’ll be allowed to borrow.
Most people are probably aware of the Central Bank’s mortgage lending rules, which limit the amount you can borrow in relation to your income. If not, check out this guide.
But another limit that lenders look at is your mortgage repayment as a percentage of your net disposable income (NDI).
In short, regardless of how much you earn, your lender will want to ensure that your monthly mortgage repayment isn't more than around 30% - 35% of your NDI.
Your NDI is your income after tax, loan repayments, and alimony payments - if applicable - have been taken into account.
So if your NDI is €3,000 then your mortgage can’t be more than around €1,050 a month.
What this means is that having any loans will reduce the maximum amount you’ll be able to borrow as it reduces your NDI. So if you’re looking to borrow as much as possible don’t take on any new debt before applying for a mortgage.
8. Not planning properly
As you’ve probably gathered by now, you need to think about getting ‘mortgage ready’ at least six months before you even apply for a mortgage. But in general the planning starts even further out.
A lot of people make the mistake of applying for a mortgage without releasing all the things they should (or shouldn't!) have been doing over the previous few months
Your lender will conduct a forensic-like analysis of your finances over the previous six months. They’ll look at loan, current account, savings and credit card statements.
So for the six months before you even apply for a mortgage be mindful of how you're managing and spending your money.
As we’ve mentioned, don’t miss any bill or loan repayments or go into an unauthorised overdraft. And if you’re saving money or paying rent make sure you’re able to easily show this.
Some lenders also don’t look favourably on those with a pattern of betting and gambling on their account. While the odd flutter on your favourite horse or doing the weekly Lotto is usually fine, anything excessive could raise eyebrows.
9. Leaving mortgage protection and home insurance until the last minute
Mortgage protection is a form of life insurance which pays off the outstanding balance on your mortgage should you die before the mortgage is fully repaid. It is usually compulsory for all mortgage holders in Ireland. So in short, if you haven’t got mortgage protection in place, then you can’t draw down your mortgage.
Many people make the mistake of only applying for mortgage protection after they’ve received mortgage approval and are frantically trying to close everything off and get the keys to their new home.
However, depending on your health and that of your closest relatives - your insurance company will want to know all about any genetic diseases in your family - the mortgage protection application process can sometimes be longer and more strenuous than the mortgage process itself!
Depending on your health, medical reports might be required from your GP or consultants, which can all take time.
Countless times we’ve heard of people losing out on their dream homes because they couldn’t get insurance in place quick enough. So start applying for your mortgage protection as soon as possible. Once approved your policy will remain in place for three months usually.
While home insurance is usually less complicated, again it’s best to get it arranged as soon as possible and not leave it until the last minute.
The good news is that you can now get mortgage protection quickly and easily through bonkers.ie. We compare quotes from all of Ireland’s leading insurers. You can apply online in just minutes and get covered in under one hour in some cases.
Compare mortgage rates today
Are you considering applying for a mortgage? With bonkers.ie it’s easy to compare mortgage rates in just a few clicks.
Whether you’re a first-time buyer, home mover or switcher, you can easily compare interest rates, offers and cashback incentives from all Ireland's lenders using our mortgage calculator.
And when the time comes to apply for your mortgage, you can submit an online enquiry through our new mortgage broker service. One of our qualified financial advisors will call you back to get your application started.
Our mortgage service is entirely free and is fully digital from start to finish, meaning everything can be carried out online from the comfort of your home. And it's completely paper-free too!
To find out more about our mortgage broker service, see here.
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Can you think of any other mistakes to avoid when applying for your mortgage? We’d love to hear from you in the comments below.