Preparation before buying - 5 year plan

Fiii

Hi everyone

Myself and my partner are thinking of buying a house in the next 5 years and seeing as neither of us have ever gone through this process before, I just wanted to get some advice on what we should be doing in the mean time to prepare ourselves (besides saving money obviously ) and to have everything in order before we even start looking for a mortgage.

A little bit of info...
We will both be first time buyers, and by that time we will be in our 30's.
We have been renting together and separately for the last 7 years, all utility bills/ rent have been paid on time through direct debit (mostly from his bank account, but both names on the bill).
I have never had a loan but do have a credit credit card, which I always pay off within the month or at most, three months. My partner had some debt from 2 small loans and a credit card a few years ago, which has now been paid off in full as of last year. We don't have overdrafts.
We will be looking to buy this house as a 'home' to live in, potentially for the rest of our lives (not a 'starter home' or 'getting our foot on the ladder' etc - never really bought into that concept. My dad always tells me "If you buy a house, make sure you want to live in it!" ).
I am self employed, and have been for 2 years now (red flag to a bank, I know, but by then I will either have been self employed for 7 years, or be in full time employment again - fingers crossed!).
My partner has a pretty good job with a company he has been with for 7 years, and hopefully still will be - fingers crossed again!
We do not have a joint bank account.
We will be looking to buy in Dublin, a 3 bedroom house at least.

We would be hoping to save about 20% for a deposit (I'm using the figure of 350k at the moment just to base savings on, but do hope prices go down in the mean time), and extra for furniture/ solicitors fees etc between now and then, but what else should we be doing to make us good candidates for a mortgage?
Should I take out small loans just to show I can pay them back? (Have heard this in the past- don't know how much truth is in it)
What other steps should we put in place, if any, to better our chances and to make the process that bit smoother?

Just trying to gather information at the moment really. We won't be ready (or willing) to buy for another few years anyway, but I do like to be prepared in advance
I don't want to save our butts off for 5 years, only to be told 'actually, you should have done xyz'.

Thanks in advance for any help.

F

LightningBolt

To be honest I wouldn't bother taking out any small loans to show that you have the ability to repay. What I would look to do is make sure that there's a set amount going out each month into a fixed term savings account of some kind, it could be an instant access too if you wanted.

At the end of each month I would aim to have a couple of hundred left over so that it doesn't look like you're living paycheck to paycheck.

From what I've read I'm pretty sure you and your partner will have little trouble securing a mortgage if you look to have a deposit of 20% or so saved up.

Only advice I'll give is to stay doing what you're doing and get as much up for your deposit as possible in the next five years!

Dades

I wouldn't sweat it too much now if you're only looking to buy in a few years.

Small loans, credit cards, can all be wiped clean dealt with in short notice. The banks (at the moment, at least) want to see you have a history of repayment of rent/mortgage, and have a steady net income that can make repayments. They like to see a history of savings too.

Sort out your accounts 6 months before applying you'll be sorted.

antoinolachtnai

I would spend a bit of time looking at property. Just driving around, getting to know the different areas at different times of the day and the year, to find out what you really want.

fricatus

Here's what I would do:

1. Set up two savings accounts: one long-term and one short-term. The short-term one should be instant access, preferably online, with someone like Rabo Direct. The longer term one can be one of these lock-away higher-interest ones, just read the Ts and Cs so that you don't get caught out if you want to increase or decrease the amount you put in.

2. Start saving a relatively small amount in your long-term account, and maybe a bigger amount in your short-term account.

3. Commit to keeping a minimum balance of say €500 or €1,000 in your main current account, so that if unexpected bills come up, you can pay them without recourse to credit cards or overdrafts. (Minimum credit card payments, unauthorised overdrafts due to a cashflow "hole", tiny amounts in your current account at end of month; these are all red flags to the banks).

4. Keep your credit cards under control until you've saved enough so that you can clear them from either your current funds or from the short-term account. By all means use them for convenience, but at this stage you should always be able to clear them from savings.

5. Once your short-term savings account has enough of a balance that you can deal with unexpected trouble (such as your car dying suddenly), start moving a larger portion of your monthly savings amount into the long-term account.

6. Towards the end of the process, you want to be putting a decent amount in short-term savings aside so as to cover house repairs, holidays, cars, etc. It doesn't matter if you raid this every so often, because that's what it's for!

As for your long term savings, the amount going into this plus your current rental outlay should be sufficient to cover the mortgage plus, say, about 3% in interest-rate hikes.

Aiming for 20% deposit is a brilliant idea, since a lot of banks give you a better rate when the loan-to-value ratio is under 80%.

Good luck!

Meathlass

Hi op, well done on being organised. I have a number of friends working in banks and have discussed this issue with them several times as I'm in a similar position to you.

I was told not to have any online gambling accounts e.g. paddy power etc. Even if it's only tiny amounts going out of your account and huge amounts of winning coming in it's a red flag to the bank. My friend said when they gave out loans a few years ago they just looked at your balance at end of month, savings, loan repayments etc but now (in this particular bank anyway) they look at the individual ledger entries not just the balance. So if you are using up most of your paycheck each month (not withstanding some of the paycheck going into savings accounts) and your balance is less than €100 that's not good. They then look at where you are spending the money - are there a lot of entries for high street shops e.g. new look, river island, hmv, cinemas. Stuff that's obviously discretionary spending. My friend advised me not to use my laser card for anything unless it's obviously necessities like Petrol or groceries. She said to take out €200 and go shopping with that and if the bank asked you can say you spend it on groceries, a night out etc. It looks better on your account to take out a lump sum every week then having constant withdrawls of €50 every few days or a stream of laser payments to shops.

Some of this might seem inconsequential when you're obviously in quite a good personal financial situation but just something to be aware of.

hunkydory1

Hi Meathlass

I find this particular banks approach to bank statements unduly harsh. I'm in the same boat also. Any chance you could name the bank? PM if you'd prefer!

Meathlass

hunkydory1 wrote: »

Hi Meathlass

I find this particular banks approach to bank statements unduly harsh. I'm in the same boat also. Any chance you could name the bank? PM if you'd prefer!

It's AIB - but wouldn't be surprised it they're all doing it. Obviously it only matters if you're short money or living from pay check to pay check but yeah, they're really investigating everyone these days. This is not just for mortages, it's for any kind of loan.