Self Build Mortgage

jiminho

Just wondering has anyone been able to be approved for a self build mortgage while maintaining existing mortgage? We live on a corner site with the potential for a new house but we’d like to keep our ex. home to rent out. Our current home LTV is 65% but our mortgage amount is 4x our salary. Our bank has come back and essentially said your lending is maxed out based on our incomes.

Has anyone been in the situation and managed ti essentially get a second mortgage?

XsApollo

it’s not really about 4x salary, I am presuming it’s more about your ability to repay.

Banks work it out something like this.

Say your combined take home a month is 5,000

They will take 2,000 for a married couple to live on a month, add 250 euro per child if any.

Any loans? Add them also.

Any credit cards, or other debt will also impact this monthly figure.

If Your current mortgage is 1000 a month,

They will also stress test your mortgage by a few percent .

Actually I presume you know this already since you already have a mortgage .

If you find a bank that will take some of the possible rental income from your current house that may help. PTSB did this for me a few years ago to buy a second house and it got me over the line.

But if you don’t meet the ability to repay criteria then you will not get a mortgage.

jiminho

https://www.boards.ie/discussion/comment/122199375#Comment_122199375

Yeah thanks for the comment. Perhaps I need to sit down with a broker. I feel, like everyone, the banks don’t want to lend money so persistence and patience is probably required. To provide a bit more info, we have been provided a rental potential valuation and this will essentially pay for the mortgage plus any ancillary costs associated with the rental. We’re then essentially asking for the same value mortgage we’re currently paying. I know banks have numerous red tape with stress tests etc. but the ask is essentially to pay same value mortgage payments on new property while ex. mortgage is covered from rental income. So we’re essentially no better or worse off then we are now. I’m hoping someone, somewhere has had to overcome a similar situation.

phormium

It will come down to income and affordability and the bank won't take into account the full income from renting, they will be allowing for empty periods/tax/maintenance etc, will your rent pay your mortgage repayments after taking off the tax you will incur on the additional income?

That said banks do usually work it out two ways, based on net income/repayments as mentioned above and the multiple of income, it must usually come in right on both to get approved. A broker is probably a good idea for a non standard application like this.

jiminho

https://www.boards.ie/discussion/comment/122199484#Comment_122199484

Thanks for the comment. Yes the rent (net income after tax removed from the mortgage interest to gross rent differential) will essentially pay for the ex. mortgage plus forecasted additional costs. So the repayment part I’m not concerned about from our own viewpoint (the banks viewpoint is another) but the salary multiplier is concerning. If they are sticking to the 3.5-4x multiplier, we would essentially need our existing mortgage paid off or to somehow double our income!

Surely the plethora of corner houses dotted around Dublin haven’t been built by people who either earn an obscene amount of money or had their homes paid off early enough in their lives when the bank would lend them enough money to actually complete the self build. Maybe I’m being naive!

phormium

Dunno, my uncle did that, built a new house on half his site but he sold the original house. I'd imagine many of the double houses you see are not necessarily both owned by original owner, many sell the site just for extra money and others like my uncle want a newer/smaller house.

Banks have a very conservative approach to rental income (compared to Celtic Tiger days!), you never know what can go wrong, wrong tenant who stops paying for example, bank is always looking at worst case scenario and can you afford it then! Broker is best chance.

Jim2007

https://www.boards.ie/discussion/comment/122199457#Comment_122199457

That is not correct. You hold one high risk low return asset and you are now going to double down on that at the banks risk, so you can expect that the banks and far more importantly the underwriter is going to be very careful about taking on such a risk.

jiminho

https://www.boards.ie/discussion/comment/122203325#Comment_122203325

Not sure I understand what is incorrect about my comment but thanks for the response and adding value to the thread

Deub

https://www.boards.ie/discussion/comment/122204918#Comment_122204918

You said:

So the repayment part I’m not concerned about from our own viewpoint (the banks viewpoint is another)…

But you should be concerned. Would you be able to repay both mortgages if the tenant doesn’t pay the rent for a year?

The rent is not a guaranteed income.