If you are wondering how lenders actually qualify you for a mortgage, here are the nuts and bolts of how it works behind the scenes! Get your mortgage insider tips from Con Daly – Certified Financial Planner™.
Your employment history
A stable, solid work history or other source of income is vital to your loan application. Your employment history for at least the past two years must be documented with an Employment Detail Summary (Formerly P60) a person must be in their current employment for at least one year, and not subject to contract or probation. Your current employer must fill out a salary certificate, to confirm your yearly salary. If you are self-employed, you will also need to provide a Notice of Assessment and Two years audited accounts: The following types of employment will be highly scrutinized and may or may not be allowed as qualifying income:
- Self-employment for less than two full tax years, an explanation as to previous employment may be requested.
- Contract Employment
- Commission and bonuses and overtime payments if applicable
- Rental income that shows as a loss on your tax returns
- A good rule of thumb is: “If you can’t trace it, you can’t use it”. Thus, income that does not show up on your tax returns cannot be used to qualify.
Showing your credibility
You need to document the source of your savings, legal fees and deposit. The longer you can show you’re saving the better. e.g saving €200 a month for the last five years will look more favourable than a gift of €12,000 from your parents. If you are renting, pay your rent through your bank account so lenders can see you have a track record of paying on time. If you live at home but pay towards your upkeep, pay this also through a bank account. Keep your bank account in good order, no referral fees, no online betting accounts. Show that you are living well within your means.
How will the bank verify my savings?
You’ll need to provide the last six months of your current, savings accounts. These statements need to show your name, address and bank account number. Note: that, unless you are receiving a gift of the deposit, all lenders require that you can prove that you saved and had the capability of saving the money. If you inherited a portion of the savings or had a sale of a previous property, a solicitors letter to state this may be requested by the lenders. This is to comply with money laundering legislation.
Why do lenders care that my funds are saved?
Lenders want to see that you have the ability to budget your finances, that you can pay your rent and save, or that if you did inherit money that you held on to it and didn’t blow it, basically that you are financially savvy and able to live within your means. Furthermore, lenders want to be sure you have not borrowed the down payment, creating a future undisclosed liability.
Documenting gift funds
Again, lenders want to be sure you are not borrowing money without disclosing this as a debt, so gifts must be documented properly. They must be from a family member or relation and must come with no strings attached. I will send you a gift letter format with instructions that you can use to document your gift.
Your debits, credit history
Your credit report will show any debts you may have or had in the past. Those debts include credit cards, car payments, student loans and mortgages. The credit report will show if you are a good risk, in that you paid your loans on time and in full. If you never had a loan or a credit card, it will show this also. See enclosed link to explain how a credit check is done and rated. https://www.centralbank.ie/consumer-hub/explainers/what-is-central-credit-register Under Data Protection Acts 1988 and 2003, you are entitled to receive a full copy of any data held in your respect on ICB’s database. There is a 6.00 Euro fee per application
Our underwriters look at your new housing payment (mortgage + insurance), they will allow for a 2% interest rise, add your other monthly debts (credit cards + living expenses, car loans) and divide that into your gross monthly income. We will only look at current salary and will not factor in increases in the future even if you are in a Public Sector. A lending institution will only allow certain percentage of salary bonus/overtime etc. to be calculated and only if your employer can confirm if they are guaranteed.