Advice on getting a small mortgage

jeffries

Hello,

I have returned to Ireland in early 2019 after studying abroad. I am 25 years old and started a job in September 2019 in Dublin which has a salary of 45 k per annum (50 k when including bonus and benefits). I have been renting since September but I have been considering buying my own place.

After some searching I am currently considering purchasing a property outside Dublin located on a site in the countryside. It is a old house that is in need of significant repair. The structure is fine - all walls, floors and roof are in good condition. The repairs would focus more on being the internals up to a liveable standard.

The total cost of the property, including purchase of the site and all repairs, would set me back roughly 80 k (I aim to do a lot of the work myself and I know good tradesmen who will help for reasonable prices). I have about 15 k saved myself and have recently received an inheritance in cash of 30 k. I also own a site which I received from another inheritance which is roughly 50 k so my total assets are about 95 k. I would need a loan for at least 35 k but I am aiming for 50 k.

My liabilities/expenses are roughly €1800 a month so, after tax, usc and prsi and expenses (I have a been very conservative in calculating these over the past few months) my net income is €1200 a month. I am single and do not have any dependents.

I should mention that I am on probation in my job until the end of February (I fully expect to pass as things have been going well). In the last 12 months, my bank account with BOI (the account I am using now) hasn't experienced a whole lot of transactions. In that time I was living at home and only paying small rent/bills to my parents but these were in cash. Most payments were for household equipment for my parent's house (I did a lot of repair work while living there) but the account did drop below €100 at one stage.

So, all-in-all, I have only 4 months of receiving stable income and paying serious expenses and bills with this account. But I think I have a significant income and I live a frugal lifestyle and save well.

I should mention that having calculated what my mortgage repayments would be for a 50 k loan, and considering the additional expenses due to living outside Dublin (commuting, parking, etc), my total bills would be less than my current situation. I'm currently paying nearly €1000 a month on rent!

What are your thoughts on my situation? Do I have a good chance of securing a mortgage? Perhaps I should wait until after probation (2 more months) to approach any banks? Would there be any issue in a bank giving a loan to repair an old house that is not to a desired standard (i.e. perhaps it first needs engineer approval)? Is there anything obvious that I haven't considered?

Thank you all for your input.

jlm29

The interest rate on a mortgage would be much much lower. I doubt you’ll get a mortgage while on probation though.
A 50k unsecured personal loan will probably be hard to get too. And will have to be paid neck much faster, making repayments very high.

Getting a mortgage to do up a house is a pain though, depending on the condition of the current house, it can almost be like a self build. The bank will require quotes, invoices etc, I don’t know how that will work if you plan on doing the work yourself.

jeffries

jlm29 wrote: »

The interest rate on a mortgage would be much much lower. I doubt you’ll get a mortgage while on probation though.
A 50k unsecured personal loan will probably be hard to get too. And will have to be paid neck much faster, making repayments very high.

Getting a mortgage to do up a house is a pain though, depending on the condition of the current house, it can almost be like a self build. The bank will require quotes, invoices etc, I don’t know how that will work if you plan on doing the work yourself.

Thanks for the reply jlm. I think you're right regarding the situation with probation but I will be off probation in two months so that won't be long in coming around. My main worry is that the bank will want me to wait until I am 12 months in the job. Since the loan is approximately 1.0 x a year's salary (nowhere near the 3.5 x limit), and I have low liabilities/expenses, then I am hoping that won't be necessary.

Good point on the quotes/invoices required. When I say that I will do a lot of the work myself I mean that I will do a lot of the labour myself and pay any material/equipment costs with my own finances. I will purely use the loan to finance either the purchase of the property or on other expenses from registered tradesmen (so I can provide them with quotes/invoices etc).

jlm29

jeffries wrote: »

Thanks for the reply jlm. I think you're right regarding the situation with probation but I will be off probation in two months so that won't be long in coming around. My main worry is that the bank will want me to wait until I am 12 months in the job. Since the loan is approximately 1.0 x a year's salary (nowhere near the 3.5 x limit), and I have low liabilities/expenses, then I am hoping that won't be necessary.

Good point on the quotes/invoices required. When I say that I will do a lot of the work myself I mean that I will do a lot of the labour myself and pay any material/equipment costs with my own finances. I will purely use the loan to finance either the purchase of the property or on other expenses from registered tradesmen (so I can provide them with quotes/invoices etc).

Is the house currently habitable? The most straightforward thing to do would be to mortgage the house and then do it up from your cash. But you’ll have trouble getting a mortgage for a house that isn’t habitable. We got a mortgage a couple of years ago for renovations, and we had to have invoices to draw down the money. You might have trouble with that if you’re borrowing money for materials, unless you know a builders provider that will give you credit.
And remember that whatever you think you’ll spend, you can probably Double it.

SozBbz

jlm29 wrote: »

Is the house currently habitable? The most straightforward thing to do would be to mortgage the house and then do it up from your cash. But you’ll have trouble getting a mortgage for a house that isn’t habitable. We got a mortgage a couple of years ago for renovations, and we had to have invoices to draw down the money. You might have trouble with that if you’re borrowing money for materials, unless you know a builders provider that will give you credit.
And remember that whatever you think you’ll spend, you can probably Double it.

I agree, the condition of the house is key.

If its habitable, just not really ideal, then it could work and you could make improvements gradually over time.

To me, habitable would be all of the following items at minimum;
- connected to electicity grid
- connected to water source
- airtight (not talking A rated airtight, just not letting in leaks, roof in reasonable order and windows/doors all in place.
- basic flooring throughout
-functional kitchen (even if basic)
- functional bathroom (evne if basic)

On that basis, you could conceivably live in it and do it up over time. If it doesnt have those basic amenities, a bank may insist on a self build type loan which is an altogether different proposition.

How bad is it OP?

Also, I know I probably say this a lot on here but just saying "my mortgage will be less than my rent" is naive.

As a home owner, your liable for a lot of other expenses that are typically bundled into rent, such as but not limited to;
-insurance (house and contents)
-bins
-LPT
-ongoing maintenance - this is the big one! If the boiler blows in the morning, its on you. Especially with 2nd hand houses, its buyer beware and something can go wrong even early on, such as the boiler needing to be replaced which would cost thousands. You have to be able withstand all of that and still pay your mortgage and all other bills as they fall due.

Also, at the outset you have to factor in legal and professional costs which are one off, sunk costs and can feel expensive at the time.
- Stamp duty at 1% (not much in your case)
- Legal fees maybe €1500 to €2000 or above
- Professional fees - at minimum you'd want a survey and a bank will want a valuation - probably €500 at minimum

Not to say buying is wrong for you, but you're still young, and there is a value to renting and letting all of the above be someone elses problem.

Q&A

jeffries wrote: »

The total cost of the property, including purchase of the site and all repairs, would set me back roughly 80 k (I aim to do a lot of the work myself and I know good tradesmen who will help for reasonable prices). I have about 15 k saved myself and have recently received an inheritance in cash of 30 k. I also own a site which I received from another inheritance which is roughly 50 k so my total assets are about 95 k. I would need a loan for at least 35 k but I am aiming for 50 k.

With such low sums I doubt you'd get a mortgage. Most banks have a minimum loan amount (80-100k). How much would a fully renovated house likely fetch on the market? If you include the renovations in your mortgage and the likely value is high enough it might work out cheaper to borrow more as a mortgage than the smaller amount as an unsecured loan.

Treat your savings as your insurance policy rather than your first line of defence. It might be easier to get the loan if the renovations are included as it may give the bank some comfort that the stage payments will be associated with increases in value. Also if you under borrow now and you need more in the future there is no guarantee that that will lend you the money. If it all works out well you can always use your savings to reduce the mortgage later. Yes it will be a little note expensive now but it might save you a headache down the line.

On the other parts. Banks will want to see evidence that you can manage the repayments/expense. I worries try to have as much going through my bank account so they can see where the money is going. Cash payments are a grey area and don't show banks anything about your ability to repay.

Newsgirl

Hi!
I bought a small 1970s house in the countryside 18 months ago. It was habitable but I've been doing it up since.
I had some equity from a boom-time Dublin apartment I sold, so the additional amount I had to borrow was around €50,000. I applied for a mortgage with all the banks but was turned down and then went through a broker, who also didn't have any luck. The broker explained that the mortgage amount was too low for the banks to gain any profit from the homeloan. You might have to seek a larger mortgage, one that would factor in the renovation costs.
In the end, I took out a personal loan from the credit union and my mother took out a personal loan that I'm repaying. The interest rates are higher, naturally, than the mortgage rates. And, of course, not everyone's parents would be in a position to take out a loan.
If you can find a good broker, or someone can recommend one, I'd start from there to figure out the best way to approach it. But you might have to prepare to save for a good number of years if a mortgage or personal loans are out of the question. Best of luck!

jlm29

Just to mention that our mortgage is less than €50k, so it obviously varies wildly!

Q&A

jlm29 wrote: »

Just to mention that our mortgage is less than €50k, so it obviously varies wildly!

When did you draw down out of curiosity?

jlm29

Q&A wrote: »

When did you draw down out of curiosity?

In the first half of 2018 I think? Was told by my friends sister who works for AIB that €25k was the minimum amount

LirW

Same situation 3 years ago and went down the personal loan route. Yes, the loan is more expensive, the interest is higher but it was the most straightforward thing for us, since nobody wanted to lend such a small amount.
The upside is, we're done in 4 years!

tiredcity

We got a 50k mortgage from KBC last year without too much hassle. Only wanted 30k but that was the least they were willing to loan.

jeffries

Thank you all for your comments!

The house is not immediately habitable, but it's not far off. It is connected to electricity grid, has a working water supply, roof is not leaking, and structurally it's fine. It just needs light repair (painting, some internal plumbing, etc).

SozBbz, I agree that one is "on the hook" for more liabilities when owner of a home but I am considering those in my estimation and the reduction in monthly liabilities is significant enough for it to be a factor (20-25% reduction in my case). In my opinion, the advantages one gets from renting do not reflect today's rental prices in Dublin. Yes one has more liabilities when they have a mortgage but in the mid-to-long term they are nothing compared to the opportunity cost of renting - this purchase will both be a place to live as well as an investment. With freedom comes responsibility, so I'm happy to accept those added costs in exchange for my own place!

From what I read here, it looks like the minimum mortgage limit depends on the bank so I'll have a look around. Thanks guys, and if anyone thinks of anything else then please let me know!

jlm29

jeffries wrote: »

Thank you all for your comments!

The house is not immediately habitable, but it's not far off. It is connected to electricity grid, has a working water supply, roof is not leaking, and structurally it's fine. It just needs light repair (painting, some internal plumbing, etc!

It sounds like it is habitable but cosmetically not as you would like it to be? If it’s a house that you could not live in, there’s a good chance the bank will not lend you the money. If it’s a house that you wouldn’t fancy living in until you’ve done it up a bit, that’s a different story.
If it’s the former, it’s essentially a self build mortgage you need, which would be a bit of a balls. If it’s the latter, a normal mortgage is what you need, and the most straightforward thing to do, I would think, would be to pay the minimum deposit possible out of your savings, but the house with whatever mortgage you need, and then use the rest of your savings along with a small personal loan to fund the renovations. Saves you scratching around for quotes and invoices and pre and post valuations and all that