How much is it possible to borrow?

summereire

Hi, we're self-employed and are about to self-build a home and are trying to figure out how much we will be able to borrow. What is the general minimum income needed for a married couple with a baby in order to borrow, preferably about €200k?

I assume the amount the bank will work on is our total business income minus business expenses and minus all tax? If I put that figure into mortgage calculators should that give a good sense of amounts or it worth asking them too?

To make the matter slightly more complicated, we are renting a premises at the moment for work but that money will immediately be saved when the house is built as we will work from there- will the bank take that into account in a mortgage application?

Thanks

bluestrattos

Well, it's not a rule of thumb, but in general, 3.5x your annual income.
Using the calculators online that you're referring too, might give you an idea, what to expect.

summereire

Thank you. So the total business income minus expenses and tax would be the amount to multiply by 3.5 for a rough figure?

And do banks take into account savings that will be made following the build due to not needing a premises?

bluestrattos

summereire wrote: »

Thank you. So the total business income minus expenses and tax would be the amount to multiply by 3.5 for a rough figure?

And do banks take into account savings that will be made following the build due to not needing a premises?

Yes, for a rough figure that would be the approach.

Yes, banks might have that in consideration, and initially they also check your last 6 months. Something like bets, can be off putting for the bank.

Baby01032012

That's business income not necessarily your income. What income are you drawing from the business, what's on your p60? It's not just income, they will look at your regular savings, level of deposit your putting towards build. They will also look at the cost of the build against value on completion.

summereire

Baby01032012 wrote: »

That's business income not necessarily your income. What income are you drawing from the business, what's on your p60? It's not just income, they will look at your regular savings, level of deposit your putting towards build. They will also look at the cost of the build against value on completion.

Thanks, that's why I ask the question, because in the case of a non-company sole trader there is no clear distinction between the business and us other than business income minus business expenditure and tax and we get whats left, not that we necessarily spend it all.

johnnyskeleton

summereire wrote: »

Thanks, that's why I ask the question, because in the case of a non-company sole trader there is no clear distinction between the business and us other than business income minus business expenditure and tax and we get whats left, not that we necessarily spend it all.

Your income for mortgage purposes is your business income less expenditure. Tax and pension payments are important regarding stress testing (ie can you afford €1,500 per adult per month after the mortgage payment from your net income) but for the headline income its the pre tax amount.

its also usually averaged over he last 3 years.

So say year 1 100k sales 30k expenses, net income=70k
year 2 150k sales 30k expenses, net income=120k
year 3 70k sales 20k expenses, net income = 50k

The average income is 70k + 90k + 50k / 3 = 80k

Thus, although in obe year you earn 120k and in another 50k, your income is considered 80k (although the bank will ask for an explanation for the rise/decrease in income). In reality your net income will be significantly less than this.

The bank will then apply their maximum borrowing multiplier (3.5x - 5x) to that and so if they will allow 4x your income you can borrow up to 320k.

summereire

Brilliant thanks- so just to clarify, the amount I'm putting into the mortgage calculator, is after tax or before tax? Obviously its after business expenses either way. Do the bank have a standardised amount they think it costs to support a married couple with a baby that they apply?

johnnyskeleton

summereire wrote: »

Brilliant thanks- so just to clarify, the amount I'm putting into the mortgage calculator, is after tax or before tax? Obviously its after business expenses either way. Do the bank have a standardised amount they think it costs to support a married couple with a baby that they apply?

Before tax.

I thought it was €1,500 per adult, but according to this article its €1,400 single app and €2,000 couple:

http://m.independent.ie/irish-news/mortgage-applicants-must-submit-to-exhaustive-financial-stress-tests-30282774.html

In reality they will look at all your outgoings etc, but this is not a bad guideline figure