Securing a mortgage in Ireland can sometimes feel like a convoluted process, and let’s be honest, a stressful one. Understanding what lenders consider “no-nos” can help not only improve your application but also shorten it and make it less nerve-wracking. Here are some key factors lenders don’t want to see:
1. Poor Credit History
Late Payments and Defaults
Lenders scrutinise your credit history for late payments or defaults. Keeping a clean record by paying bills on time is crucial. If you are not able to keep up with your monthly payments, be upfront with whoever the service provider is and discuss adjusting your monthly payments.
High Credit Utilisation
Using a large portion of your credit limit may suggest financial instability. Lenders want to see that you’re living within your means and will be well able to pay a mortgage each month. Aim to keep your credit utilisation below 30%.
2. High Debt-to-Income Ratio
A high debt-to-income (DTI) ratio means a significant part of your income goes towards debt repayment, leaving less for mortgage payments. Lenders typically prefer a DTI below 40%.
3. Unstable Employment History
Frequent Job Changes
Stability is key. Frequent changes in employment can raise concerns. Lenders prefer consistent employment within the same industry. We by no means suggest you stick at a job you hate or put your dreams on the long finger. What we would recommend is figuring out what your priorities are as changing jobs right in the middle of a mortgage application would be a messy business. Plus, you need to be in a permanent role for 6 months as far as the banks are concerned.
Gaps in Employment
Unexplained gaps between jobs may be a risk. Take this with a pinch of salt. This sentiment has come a long way in recent years. There are so many reasons you might have employment gaps; starting a family, travelling the world, illness etc (all of which are valid reasons). It is just something to be aware of, in case a lender questions it.
4. Insufficient Savings
Generally speaking, 10% of the purchase price is what is expected as a deposit. However, a larger deposit reduces the lender’s risk, thus making you more favourable to a lender. With the cost of nearly everything skyrocketing, you can only do what you can and 10% is a sufficient saving in many/most cases.
5. Unverifiable Income
Lenders require verification through payslips, tax documents, or bank statements. Inconsistent or unverifiable income sources can complicate your application. Make your payment and income history as simple to dissect as possible!
6. Unresolved Financial Issues
Inaccurate Information
Providing conflicting details can harm your credibility. Ensure all information is accurate and consistent.
Outstanding Debts or *Liens
Unresolved debts or legal issues can impede your mortgage application process.
*A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt
7. Recent Large Purchases
Making significant purchases before applying for a mortgage can negatively impact your credit score and increase your DTI ratio. Lenders prefer financial stability. This is why planning as far ahead of your mortgage application as possible is best.
8. Excessive Credit Enquiries
Multiple credit inquiries in a short period can suggest financial stress and may lower your credit score.
9. Spending After Approval in Principle
You have just received an approval in principle. You breathe a huge sigh of relief that you’re that much closer to your new home. However, you aren’t all the way there yet. It can be tempting to let your spending increase and your savings decrease at this milestone. It’s absolutely vital that you continue in the same vein as before until you draw down.
The bottom line
Securing a mortgage requires careful preparation and understanding of what lenders prioritise. By avoiding common pitfalls such as poor credit history, high debt-to-income ratio, unstable employment, insufficient savings, unverifiable income, unresolved financial issues, recent large purchases, excessive credit inquiries, and overspending after approval, applicants can enhance their chances of success. Planning and maintaining financial discipline can significantly ease the stress of the mortgage application process and lead to a smoother path towards homeownership! For more advice on mortgage applications or to get started with us today; contact the Smart Mortgages team today: 01 2393220 | info@smartmortgages.ie