As your life changes, so will your requirements for what you need in a home. When your purchase your first home it should suit where you are in your life at that time. However, as your situation changed over time so will your living requirements so it could be time to start the process over again. You have already completed this once before and the process is the same except now you are also selling a property. Timing is key and you will need to decide when you will sell your own property and when to purchase the new one. First we need to ascertain whether you have sold, plan to sell or are holding onto your existing property.
Current Property is sold:
If you have sold your initial property then the application is a straightforward one to purchase a Principal Private Residence (PPR). Lenders will look at employment, income and evidence of repayment capacity.
Under Central Bank lending rules loan to value for non first time buyers is 80%, this means non first time buyers need to have a 20% deposit. There are some limited exceptions available to these rules which would allow second time buyers to avail of up to 90% finance. Please contact the Mortgage Horizons team to discuss. Mortgage term the lenders will extend are in general at age to expiry 65 years or 70 years depending on the lender with a maximum term of 35 years. To note the longer the term the more interest you will repay.
You do not need to take your new mortgage with your previous lender
Plan to sell your current property:
If your current property is on the market and you plan to sell same prior to taking out any new mortgage then your loan approval and offer letter will be issued with a condition noting that your current mortgage will need to be cleared in full prior to taking out any new mortgage.
The main issue here can be timing, closings will need to be completed on the same day or your own property in advance.
One thing to be mindful of is if you plan on clearing your current mortgage and are on a fixed rate there can be a Break Penalty which you will need to factor into your calculations. Your solicitor will receive a ‘redemption’ figure from the bank noting closing balance on the account on that date with interest per day noted and this will include any break penalty.
Holding on to your current property:
If you intend maintaining ownership of your existing property then the lenders will need to include details of same in their underwriting assessment.
In this case we will go through details of your existing property with you. The main information we will need is estimated value, mortgage balance, lender your current mortgage is with and current repayments.
If you need to release equity from your current property for stamp duty or deposit we can assist with same. Loan to value is a key issue here.
We will need to package the application for the lenders noting current rental income, repayments, value and mortgage balance. The lenders will ‘stress test’ repayments and there may be a shortfall which may need to be met by your income, this can therefore reduce the amount of credit you will have available for the mortgage on any new property. If the property is in negative equity the lender may not take rental income into account at all, thus restricting ability to borrow for a second property.
We at Mortgage Horizons have particular experience in drawing up schedules and including ‘what if’ scenarios in terms of investment portfolios – we can provide you with a schedule of repayments based on various mortgage amounts, rates and flexible options such as interest only. This will help you to budget and make the important decisions re repayment types and affordability.
Other items to consider when trading up:
– Stamp Duty Considerations
– Bridging Finance – in general bridging finance is no longer available from the lenders, you will need to be careful of timing so that you do not run in to issues once contracts have been signed.