moneycoach first time buyer guide

8/13/2019 MoneyCoach First Time Buyer Guide

1/32

FIRST TIME BUYERSGUIDE

Money coach 140x160:Layout 1 13/10/2010 16:16 Page 1


2/32

CONTENTS

Getting Started 4Path To Purchase 6

Mortgage Options & Interest Rates 10

Different Mortgage Terms 12

Interest Only Loans 13

How much can I borrow? 14

European Central Bank 16

Stamp Duty 17

Rent-A-Room 18

Mortgage Interest Relief 19Problem Solver 20

Your Credit Report 22

Protection 23

What do they mean? 24

62sroticiloS

Mortgage Brokers 27

Professional Services 28

Notes 29

Irish Mortgage Corporation Ltd. T/A MoneyCoach

is regulated by the Financial Regulator

[email protected]



3/32

MoneyCoach.ieFIRST TIME BUYERS GUIDE

Buying a first home is one of the biggest decisions many of us will make in our lifetime.Thats why it is so important to get the very best advice on every aspect of purchasing,

including selecting the right property, choosing the right mortgage, choosing a solicitor,

protection options.....the list goes on.

This First Time Buyers Guide has been compiled to discuss many of the areas

MoneyCoach.ie frequently gets questions on. For example, the path

to purchase has become an integral part of the initial contact with first time buyers.

Other topics include different insurance (protection) options and why a solicitor is

needed in the purchase process.

MoneyCoach.ie is delighted to make this free guide available to first time buyers.

We hope that it helps answer as many of the important questions that will arise

during the purchase of your first home.

In the meantime, good luck with the purchase of your new home!

FIRST TIME BUYERS GUIDE www.moneycoach.ie3



4/32

GETTING STARTEDSome useful tips

1. START SAVING

If you dont have one already, now is a good time to open a regular

savings account.

2. MAINTAIN A GOOD CREDIT HISTORY

If you have credit cards, student loans, personal loans or car loans

and miss a payment, your bank will be able to access this information,

which can result in problems getting a mortgage. Make sure you maintain

a good credit history always!

3. FIND OUT HOW MUCH YOU CAN BORROW

Knowing how much you can borrow BEFORE you look for your property

is essential. It is called Approval In Principle (AIP) and is mortgage approval

subject to finding a property.

4. SHOP AROUND FOR YOUR MORTGAGE

Talk to an independent mortgage broker that deals with all lenders in

the market. This will save you time and hassle.

5. HOLD OFF ON ADDITIONAL COSTS

Additional loans can affect the total amount of a mortgage you qualify for.

It is recommended that you consider the impact of additional borrowings

if you are planning to buy a home in the near future.

[email protected] 4


h 140 160 1 13/10/2010 16 16


5/32

6. RENT-A-ROOM SCHEME

Under the Rent-A-Room scheme, first time buyers can earn rental income TAX-FREE.

7. LOAN TERMS

Mortgage terms can be as long as 40 years, though most first time buyers opt for a 30 or 35

year term. As the term increases, the monthly repayments fall which makes things much easier in

the first year or two of the mor tgage. Once your financial situation changes, it is advisable to

reduce the mortgage term.

8. PARENTAL ASSISTANCE

Banks and mortgage lenders now want first time buyers to be able to fund as much of a

mortgage on their own.

9. BUYING WITH A FRIEND

This is a very popular choice for many first time buyers as the combined income significantly

increases the qualifying mortgage amount. Good legal advice is recommended.




6/32



7/32

TEN

COMPLETION

FOUR

BOOKINGDEPOSIT

NINE

DOCUMENTSTO LENDER

FIVE

APPOINT ASOLICITOR

MONEYCOACH.IE

MAKING IT EASIER

A Bank or Building Society can only offer you a

mortgage from their own limited range of

products. An independent mortgage broker

They will explain each option in

detail.

An independent broker can handle

everything for you, from preparing your

application to making sure that everything thatneeds to be done is done.

An independent broker will liaise

with solicitors, auctioneers, valuers, life assurance

companies and lenders to ensure that all

deadlines are met.


can offer you a choice from the completerange of options available on the Irish market.




8/32

PATH TOPURCHASE(Explained)

1. MAKE AN APPOINTMENTThe very first step is to find out how much you can afford to borrow. Talk to

an independent mortgage advisor and they will advise you on your available

options. With many different mortgage packages on the market, it is

essential to shop around and get good professional advice.

2. PRE-LOAN APPROVAL

This is mortgage approval subject to finding a property. Having Approval inPrinciple (AIP) means that you can shop around for a property knowing

exactly how much you can afford to borrow.

3. FIND A PROPERTY

Once you know your price range, it is time to go shopping for your first

home. Search the Internet and property pages in the newspapers and talk

to estate agents that can advise you on the types of properties available inyour price range.

4. PAY A BOOKING DEPOSIT

Once you have found the property you want and agreed the sale with the

estate agent, you pay a booking deposit.

5. APPOINT A SOLICITOR

A solicitor acts on your behalf throughout the property purchase, reviewing

important legal documentation, such as the deeds and loan offer and will

advise you on issues such as purchasing with a friend. Solicitor fees will

vary so shop around!

ONE

MAKE ANAPPOINTMENT

TWO

PRE LOANAPPROVAL

THREE

FIND APROPERTY

[email protected] 8




9/32

6. FORMAL LOAN APPROVALLending institutions will issue a formal loan offer once a property has been located. A copy of the

loan offer is issued to your solicitor who makes sure all the details contained within are correct.

7. SIGNING OF CONTRACTS

Formal contracts are signed, usually within three weeks after paying the booking deposit. At this

stage, the balance of the deposit will be required from the buyer. The contracts are unconditional

contracts so a buyer must progress with the purchase of the property at this stage. Not doing so

will usually result in forfeiture of all deposit money.

8. PROTECTION / INSURANCE

The mortgage company requires you have a life insurance policy in place to pay off the mortgage

in the event that you become seriously ill or die. Similarly, you will need to have an insurance policy

in place to cover the property and contents. Both policies need to be in place prior to closing

the mortgage.

9. DOCUMENTS TO LENDER

You now need all final documentation that the lender has requested. This will include home

insurance, life cover, legal documents and all of the other supporting documentation.

10. COMPLETION

This is where the keys to your new house are ready. When the big day arrives, your bank will

transfer final monies to the lender and the keys are then delivered to the new owner.

SIX

FORMAL LOANAPPROVAL

SEVEN

SIGNING OFCONTRACTS

EIGHT

PROTECTION /INSURANCE

NINE

DOCUMENTSTO LENDER

FOUR

BOOKINGDEPOSIT

FIVE

APPOINT ASOLICITOR

TEN

COMPLETION


y y / / g



10/32

MORTGAGE OPTIONS &INTEREST RATES

ANNUITY MORTGAGE

This is another term for the standard mortgage. With an annuity mortgage,

monthly payments are used to pay off both the loan amount AND the

interest charged on the loan.

INTEREST-ONLY MORTGAGE

Interest only mortgages are where monthly repayments are used to pay

just the interest charged on a mortgage and not the actual loan amount

itself. They are available from a limited number of lenders.

FIXED INTEREST RATE

A fixed interest rate does not change during a specified term, e.g., 1-year,

3-years or 5-years. One important aspect of fixed rate mortgages that first

time buyers need to consider is the break cost of the loan that will be

applied if there is an early redemption (repayment) of the loan. Typically,

the break cost can be as much as 3 - 6 months interest. A loan may

be redeemed early as a result of the sale of the property or a mortgage

refinance.

[email protected] 10

y y g



11/32

DISCOUNTED VARIABLE INTEREST RATE

These are discounted interest rate options available for a short-term period (such as 6-months

or 12-months).

CAPPED TRACKER MORTGAGES

This is a variable interest rate and provides a facility where there is a pre-agreed cap in the rate of

increase on the mortgage, REGARDLESS of the decisions taken by the Governing Council of the

European Central Bank. The concept offers some insulation against interest-rate increases by the ECB.

SPLIT-RATE MORTGAGEThis is a mortgage where part of the interest rate on the loan is fixed and part is variable. It is typi-

cally used by someone who wants to gain some benefit from various options in a changing interest

rate environment.

VARIABLE INTEREST RATE

This is where the rate of interest will fluctuate based on a set criteria, for example, the European

Central Bank (ECB) base lending rate. However, unlike its cousin, the tracker mortgage,

adjustments of the rate of interest charged on variable rate mortgages is at the discretion of the

lending institution that provided the mortgage.




12/32

A limited number of banks offer 40 year terms. However, the most common loan terms for a first

time buyer are 30 and 35 year terms.

A benefit of a longer term mortgage is it provides a lower monthly repayment option to the

borrower. However, longer mortgage terms will incur greater interest charges over the lifetime

of the loan.

Below is an example of the monthly repayments on a 100,000 mortgage based on various

loan terms:

GREAT! LOWER MONTHLY PAYMENTS, BUT WHAT IS THEINCREASED COST IN INTEREST CHARGES?

The longer the term of your mortgage, the greater the cost of interest charged. Using the exampleabove, the total interest charged on a loan paid to completion is as follows:

MORTGAGE TERMSLong or Short - U decide

Loan Amount 100,000, Rate 4.5%

Term Total interest charged*

20 years 51,000 (in addition to the borrowed amount)

25 years 67,000 (in addition to the borrowed amount)

30 Years 82,000 (in addition to the borrowed amount)35 Years 98,000 (in addition to the borrowed amount)

40 Years 115,000 (in addition to the borrowed amount)

Loan Amount 100,000, Rate 4.5% (for illustrative purposes only, actual circumstances will var y)

Loan Term 20 years 25 Years 30 Years 35Years 40Years

Monthly Repayment 633 556 507 473 450

*Examples are provided for simple illustrative purposes only. Actual individual circumstances may vary.



13/32



14/32

Up until a few years ago, mortgage lenders assessed an applicants borrowing

capacity using a multiple of their gross earnings; in the case of a joint applicant,

the qualifying mortgage amount was calculated using two-and-a-half times the

first income plus the second income. Most lenders now use the nets

approach, which looks at the applicants ability to repay based on their net

disposable income.

As a general rule, a lender will advance funds up to the point where the

monthly repayments do not exceed 35% of the applicants net disposable

income. The use of the net disposable income approach provides for a more

realistic assessment of an individuals capacity to borrow and, unlike the

income-multiples calculation, takes into account changes to personal income

taxes, interest rates and other loans/ savings.

Under the nets method, two applicants on the same income may qualify for

different loan amounts depending on whether or not each has other loans

outstanding. For example, a typical limiting factor on maximum loan amounts

would be the existence of a car loan.

Other factors that will determine the maximum loan amount applicants

qualify for can include interest rates, savings and plans to rent out a room.

HOW MUCHCAN I BORROW?




15/32

Sole ApplicantINCOME QUALIFYING

LOAN AMOUNT*(Per year) (estimated)

30,000 144,000

40,000 174,000

50,000 207,000

60,000 238,000

70,000 269,000

*All examples provided for illustrative purposes only. Individual circumstances will vary.

Joint ApplicantsINCOME 1 INCOME 2 QUALIFYING(Per year) (Per year) LOAN AMOUNT*

(estimated)

20,000 20,000 211,000

20,000 25,000 229,000

20,000 30,000 250,000

25,000 30,000 268,000

25,000 35,000 282,000

There is no simple formula which first time buyers can use to estimate the amount they can borrow

as each of the banks and lending societies use slightly different calculations. Therefore, it is importantto get good advice from an independent mortgage advisor on the different borrowing amounts you

can get from each lender.

Below is a broad guide derived from a number of national lenders:

(Examples based on a rate of 4.5%, mortgage term of 30 years).




16/32

EUROPEANCENTRAL BANK

Since joining the Euro-zone in 1999, Irish interest rates are no longer

determined by the Irish authorities and are controlled centrally by the

European Central Bank (ECB). Every month the Governing Council of the

ECB, made up of the heads of all the Euro-zone national central banks along

with the six-member Executive Board of the ECB, meet to decide the

appropriate interest rate policy for the Euro-zone.

The primary objective of the ECB is to maintain price stability over the

medium-term in the Euro-zone, which is explicitly defined by an inflation

target of below but close to 2%. If the ECB believes inflation will rise above

the target rate in the future, then it will increase interest rates; if it believes

that inflation will fall too low below the target rate, it will reduce interest rates.

Typically, interest rates will increase when the Euro-zone economy is

performing well and fall when the economy is in a downturn.

For homeowners, decisions taken by the ECB will have a direct impact on

the rate of interest they will make on their variable rate mortgage (as well

as other borrowings). Banks generally will adjust the rate of interest they

charge customers shortly after the ECB has acted. Customers who have


standard variable rate mortgages can have rates of interest adjusted

independent of the ECB.



17/32

KNOW YOUR STAMP DUTY

Stamp duty is a tax payable to the Government based on the documents used

in the transfer of property. For stamp-duty purposes, a first time buyer is

defined as a person who has not on any previous occasion (individually or

jointly) purchased or built a home on their own behalf in Ireland or abroad.

The property must be used as their principal place of residence and it cannot

be rented out (excluding the rent a room scheme) for two years after

completing the purchase. In certain circumstances, a divorced or separated

person may be considered a first time buyer.

CURRENT STAMP DUTY RATES

N.B. all new homes less than 125 square meters are exempt

from stamp duty for all owner-occupiers.

Residential Property First Time Owner OtherConsideration Buyer Occupier Investors

First 125,000 Nil Nil Nil

Next 875,000 Nil 7% 7%

Excess over 1,000,000 Nil 9% 9%

STAMPDUTY



18/32



19/32

ITS YOUR MONEY WHICH THE GOVERNMENT WANTS

TO RETURN TO YOU!It is possible to claim tax relief on the interest you pay on your mortgage.

Under TRS, the mortgage lender gives the relief either in the form of a

reduced monthly mortgage payment or a credit to the borrowers

funding account.

Check out the maximum annual amount available at

www.revenue.ie or contact Irish Mortgage Corporation

on 1850 444 474.

Your account is credited each month

The TRS application form is available from www.revenue.ie

MORTGAGE INTERESTRELIEF (TRS)

Tax relief is set by the Department of Finance and may be subject to change.




20/32

PROBLEMSOLVER

PROBLEMS GAINING MORTGAGE APPROVAL? THERE

ARE A NUMBER OF POSSIBLE SOLUTIONSFor first-time buyers, applying for a mor tgage can be a daunting process. Most

will gain mortgage approval. However, some will be denied. The following is a

brief overview of some of the main denial reasons. Solutions are also included.

PROBLEM: TOO MANY BILLS ALREADY

This is a common problem first time buyers can face when they are looking to

qualify for the maximum loan amount. Having too many debts outstanding will

limit the total amount of a mortgage a first time buyer will qualify for.

SOLUTION: Keep your borrowings to a minimum if you plan to purchasea home in the near future as they will affect how much you can afford.

Pay off your existing loans as quickly as possible.

PROBLEM: TOO SHORT A WORK HISTORYLenders typically look for a set period of time in work and that you have

completed the probationary period. Additionally, if someone is self-employed,

they can encounter problems gaining mortgage approval. Many banks typically

adopt a wait-and-see approach.

SOLUTION: Applicants may have to wait a while if they just started a

new job or recently became self employed. You need to consider your

options with an independent mortgage broker.




21/32

PROBLEM: INSUFFICIENT INCOME

This is a big reason why many first-time buyers will find it difficult to get the full mortgageamount they require.

SOLUTION: If someone wants to buy a proper ty for more than their individual purchasing power

allows, consider buying with a friend. However, just in case the friend decides to move on in a year or

two, make sure to get good legal advice in advance.

All problems / solutions provided are for illustrative purposes only




22/32

YOUR CREDITREPORT (ICB)

CREDIT REPORTS & WHAT YOU SHOULD KNOW

How you pay your monthly bills is a central issue in whether or not yourmortgage (personal loan, credit cards and even car loan) application is approved.

Currently, all banks and lending institutions, including credit card companies and

other finance companies, report into the Irish Credit Bureau and also access it

when new and existing clients apply for credit.

In addition to all loans being reported, other information that can be reportedto the Irish Credit Bureau include judgements, collection items, defaults loans

and revoked credit cards, as well as the standard items including mortgage

payments that are greater than 30 days passed due. Banks and other lenders

not only want to know the level of debt each applicant currently owes, they

also need to know how that debt is managed and, most importantly, how they

can expect the applicant to manage the new loan (be it a mortgage, personal

loan or credit card).

Homeowners who want to find out what information the Irish Credit Bureau

holds on them can access it by contacting the Irish Credit Bureau directly at:

The Irish Credit Bureau

ICB House, Newstead,

Clonskeagh, Dublin 14

Tel: (01) 260-0388

Web: www.icb.ie.




23/32

PROTECTIONKnow your Protection options

1. LIFE COVER

Life cover will clear your mortgage in the event of an untimely death.

2. SERIOUS ILLNESS

Serious illness cover is designed to clear your mortgage on diagnosis of a

particular illness including cancer, heart disease, stroke, etc.

3. INCOME PROTECTION

Income protection will provide a replacement income if you are unable towork over the medium or long-term.

4. MORTGAGE REPAYMENT PROTECTION

Mortgage repayment protection will pay your mortgage if you cannot work

for a variety of reasons including short-term illness, redundancy or injury.

5. HOME & CONTENTS INSURANCE

Home & Contents insurance will need to be in place before you move intoyour new home. Banks will insist on this to ensure that in the unfortunate

situation of a fire, you will have the protection to rebuild your property.

Home insurance is separate from contents insurance (hence the double-

barrelled name; House & Contents) but generally, they are sold as the

same policy, you just list the personal items, and their respective value that

you want to insure, when you apply for house insurance. There are any

number of house insurance options available on the market today.




24/32

WHAT DO THEYMEAN WHEN THEY SAY?

1. ANNUAL PERCENTAGE RATE (APR)The measure of the cost of credit stated as a yearly rate and includes

such items as the stated interest rate, plus certain charges.

2. APPROVAL IN PRINCIPLE (AIP)

This is mortgage approval subject to finding a property. IT IS VERY

IMPORTANT THAT FIRST TIME BUYERS GET THIS IN ADVANCE OF

LOOKING FOR A PROPERTY.

3. CONVEYANCING

The term used for the legal work involved in buying and selling property.

4. CREDIT BUREAUAn independent agency that gathers and maintains information on

the debts and repayment records of individuals.

5. LOAN-TO-VALUE (LTV) RATIO

The relationship between the loan amount and the value of the property.

6. TITLE

A legal document evidencing a person's right to or ownership of a

property. Your solicitor will ensure that the seller is the legal owner of

the property and identify disputes or claims against the property.

Have you ever been baffled by mortgage terms? Below we provide a handy guide to the

most common jargon used by the banks, building societies, auctioneers and solicitors.


If the property is worth 100,000 and the mortgage is 80,000 then the

loan-to-value is 80%



25/32

7. VALUATION REPORTThis is an inspection of the property by the lender to ascertain its value and to find out

whether it is a suitable property to lend on. This is carried out by an independent valuer

on behalf of the lender.

8. SALE BY PRIVATE TREATY

This is the term when the property is bought other than at auction or by tender. This sale

is agreed in principle prior to signing of contracts. The price is negotiated between the buyerand the seller.

9. SIGNING OF CONTRACTS

This is a written legal agreement between the seller and buyer. The agreement is legally binding.

If the buyer terminates the contract after signing they may lose the deposit already paid.

10. STRUCTURAL SURVEYThis is the full inspection of the property to ensure that it is structurally sound. While this

survey is optional, it provides the greatest protection to buyers. It is essential for a

second-hand property, while almost all new homes are covered by either the HomeBond

or Premier guarantees.

11. CLOSING

This is the date the sale of the house is completed. The purchaser receives the keys to the house.




26/32

THE ROLE OF THE SOLICITOR IS TO PROTECT

THE PERSON BUYING A PROPERTYThe purchase of property involves a number of complex processes and various parties. A solicitor is

there to protect your interests. It is recommended that when choosing a solicitor to represent you

during the purchase of your new home, you select one that specialises in property transactions.

For example, the new home that you will be purchasing will involve the transfer of title, or

ownership of the property. What this means is that legally binding contracts will be exchanged

whereby you (the buyer) agree to buy the property (for an agreed sum) and the current owner(the seller) agrees to sell you the property. One area that the solicitor will check on your behalf is

to verify that the person selling you the home actually owns it and is legally entitled to

sell it to you. Among other issues, your solicitor will, for example, also verify that there are no

immediate planning issues that may adversely affect transfer of ownership of the home.

Another aspect adding to the complexities of the purchase and sale of property is the mortgage.

Again, your solicitor is there to protect your interests and make sure the terms and conditionscontained within your mortgage contract are as you have agreed and understand them.

There are a growing number of solicitor firms who are willing to offer competitive quotes on

legal fees, so it is advisable to shop around for best value.

SOLICITORSTheir very important role




27/32

A broker is someone that arranges a service between two parties. In the case of

a mortgage broker, the broker arranges a mortgage on behalf of a customer andwith a bank that the broker has deemed to offer best value to the client.

In Ireland, mortgage brokers are regulated by the Financial Regulator.

Mortgage brokers are required to meet certain standards and adhere to

specific practices that are designed to protect consumers.

The benefits of dealing with a mortgage broker include:

FULL AND COMPLETE SERVICE

A mortgage broker will not only help you negotiate the best

mortgage deal from the banks, they also provide a full mortgage

service. This includes advising on all necessary paperwork

required to complete each mortgage application.

FULL INDEPENDENCE

Brokers are not tied to any one bank and can offer impartial

advice on products available on the market.

COMPREHENSIVE CHOICE

The largest mortgage brokers will deal with all of the banks, which

means that consumers dont have to visit or call all the banks

individually to avail of the best value on their mortgage.

MORTGAGE BROKERSWhat are they?




28/32

PROFESSIONALSERVICES

SURVEYORS

The role of the Structural Surveyor is to protect theperson buying a property

A structural survey is a full inspection of the property to ensure that it is

structurally sound. While this survey is optional, it provides the greatest

protection for the buyer and is strongly recommended if you are purchasing

a second-hand property, as any faults will be identified and you can budget

for any necessary renovations. The structural surveyor will recommend

any structural building works or repairs that need to be carried out onthe property.

SNAGGING

If you are buying a new home, you will need to snag the property before

you close the sale. This involves identifying any outstanding work that

needs to be done by the builder on the property e.g. plastering, painting,

fixtures and fittings. You can snag the property yourself or, alternatively, paya professional (usually a surveyor) to do it for you.

VALUERSThe role of the Valuer is to protect the person buying the property

A valuer will assess the value of the property you wish to buy and ensure it is

worth at least the asking price for the purpose of a mortgage.




29/32

NOTES




30/32

NOTES




31/32

WARNING:

The cost of your monthly repayments may increase.

If you do not keep up your repayments, you may lose your home.

WARNING:

The entire amount you have borrowed will be still outstanding at the end of the interest-only period

WARNING:

You may have to pay charges if you pay off a fixed-rate loan early

WARNING:

This new loan may take longer to pay off than your previous loans.This means you may pay more than if you paid over a shorter term.

DISCLAIMER

All examples, illustrations etc provided in this book are done so for illustrative purposes only.

The report should not be relied on as a basis for entering into transactions without seeking specific,

qualified, professional advice. Whilst facts have been rigorously checked, MoneyCoach.ie can take no

responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this book.



32/32

118 Lower Baggot Street, Dublin 2.

Email: [email protected]

www.moneycoach.ie

Version Oct. 2010

moneycoach first time buyer guide

Documents