Find out what mortgage application criteria matter when you apply for a loan
When you apply for a loan, there are a number of mortgage application criteria thay you must satisfy in order to be accepted. With the new mortgage rules now firmly in place, there is now more clarity for mortgage advisers with regard to putting forward an application for approval. As you may already know, you have two choices when it comes to applying for a mortgage.
The first one involves going directly to a bank while there is also the option of going through a broker to make an application. Regardless of who you go to, the criteria is not going to change. However, there is good reason why you should go to a broker, especially if you need help with an application. A good broker will take their time with you.
A broker should assess your current finances and, if you meet the criteria, then proceed to make a formal application on your behalf to the banks (the ones offering the best interest rates of course!).
So what exactly would such a broker be looking for in a potential mortgage application? Broadly speaking, there are five things that banks look for in a strong application. Let’s start with the first one:
This one is obvious, but there’s no harm in emphasising it. As part of the Central Bank’s mortgage rules introduced in early 2015, an applicant can only borrow up to 3.5 times their current annual gross salary. In the case of a joint application, this figure is 3.5 times their combined annual gross salary.
This means that an applicant with an annual salary of €50,000 has a maximum borrowing capacity of €175,000 (€50,000 x 3.5). While this maximum is now in place, it is still possible to borrow more than 3.5 times your salary. However, consideration would be on a case by case basis.
As part of any application nowadays, you will have to give the bank a deposit. This is calculated based on a percentage of the loan amount. The percentage varies depending on the type of mortgage you are looking for. In fact, we’ve actually discussed this in a previous post. Although some banks are fine if the source of the deposit is a ‘gift’ from a family member, they prefer if the source came from saving over a sustained period of time.
All mortgages undergo an affordability ‘stress test’ to see if you can still afford the monthly repayments even if the interest rates increase by 2%. The reasoning behind this test is that mortgage terms can last as long as 40 years. Moreover, the interest rate will change over such a period of time.
Having a good salary and deposit at the ready is one thing. But how secure is the source of that income? Remember, a mortgage is the most long-term financial commitment you are going to take on in your life.
In the majority of cases, banks want to have applicants in post-probation permanent employment for at least 12 months. The line of work as well as the prospects of the company you work for are also factors here.
They will also consider applications from contractors, the self-employed and business owners. In the case of contractors, they would have to prove they have continuous work for more than 12 months along with the prospect of securing more in the long-term.
The self-employed and business owners on the other hand would need to produce accounts showing strong performance of their business in the last few years.
Good Financial Management
Last but by no means least, being able to manage the money you got is a big plus for your application. Such good habits banks like to see are:
- Be reasonable with what you spend. We are not saying that you can’t have a life, but don’t go overboard. Or you won’t be able to do the next point.
- Saving money regularly. You could put aside any spare money each month into an online savings account. This in turn could be put towards your deposit.
- If you have any loans or credit cards, make sure payments are made on time as missed payments can result in a turned down application.
- Avoid online gambling. If there is any trace of placing bets on your account, your application will end up rejected.