A key part in buying your forever home is of course, securing the finances. This can be an intimidating factor when buying a home, as there can be quite a lot involved, from budgeting for your deposit and the other costs associated with buying a home, such as stamp duty and solicitor’s fees; and finding a mortgage.
To help you fully understand the financial steps involved in buying a house, we have created this guide to take you through each step.
Deposit for buying a house
A deposit is the money you must pay when you are buying a property before your mortgage loan. This can be the hardest part of the home buying process, as it can take a significant amount of budgeting and saving over several years to build up the amount you may require.
Within Ireland, as a first-time buyer your mortgage will generally have a 90% limit applied. This will mean that you will need a minimum deposit of 10%.
For example: If you would like to buy a house that is valued at €300,000, your mortgage provider may lend you up to €270,000. You will then need to pay the remaining €30,000 yourself.
Some Lenders, such as if you are getting your mortgage from a local authority, will require lower deposit rates. But a good tip to keep in mind, is the higher the deposit you can pay, the lower the monthly mortgage repayments you will have to make!
The Mortgage
Once you have decided the appropriate deposit you would need to save for your home buying process, you can begin the mortgage process. Within Ireland, there are a number of commercial lenders, aka banks, who offer a variety of mortgage products at different rates.
Many people choose to apply for a mortgage before starting the journey of looking for their perfect home. This is called Approval in Principle, as the potential lenders are giving you an idea of how much they are willing to lend you, without knowing the value of the home you are buying. This helps to give you an idea of how much each lender can offer you and allow you to choose which may be best for you.
However, it is important to note that this is not a mortgage approval. You will only get mortgage approval when you have found a home that can be valued by the mortgage lender, and you have supplied all of the necessary information they need. Following this, you will receive an Offer Letter which needs to be signed and your mortgage can be approved.
To help ensure financial stability of the Irish economy, the Central Bank of Ireland has set mortgage limits which lenders must comply with. This limits the amount which lenders are allowed to lend you when offering your mortgage. These regulations include what is known as loan-to-income and loan-to value limits and apply to most housing loans.
A key tip when looking for a mortgage is to not to take the very first mortgage you are offered. It is important to ensure you shop around and try to find the best rate for you.
Stamp Duty in Ireland
Now you have your deposit saved and your mortgage calculated, the next big financial step to consider is Stamp Duty. Stamp Duty is a Revenue tax you must pay when transferring ownership of a property or other assets here in Ireland. It applies to all residential and non-residential properties here in Ireland.
For residential properties, aka your home, the Stamp Duty rate of transfer is 1% on the first €1 million, and 2% on anything after that. The rate applies to the written documentation that is signed and sealed.
For example, if you would like to buy a house that is valued at €300,000, you will have to pay €3,000 in Stamp Duty.
It is important to note that your mortgage provider will not cover the Stamp Duty fee, and you will need to pay for it yourself. You should consider saving for this fee when you are also saving your deposit.
Solicitors fees when buying a house
The final major financial step in your home buying process is solicitors’ fees. Once you have found your ideal home and have agreed a sale price with the owner, you will need a solicitor to begin what is called conveyancing.
Conveyancing is the legal work involved in buying a property, including the transfer of ownership from the seller to you. A good tip to think about when you are beginning your home buying journey is to find a solicitor as soon as possible, in order to make sure the process runs as smoothly as possible once you have found your home. They look after all the legal aspects, including the transfer of ownership, the stamp duty, along with any other major issues which may appear.
There is no set fee a solicitor can charge you for their services, which is in line with the Section 4 of the Competition Act 2002. It is instead based on a competitive rate, although some may charge a flat fee, and others charge a percentage of the purchase price. It is important to again, much like when finding a mortgage lender, to shop around and find a solicitor with the best rate for you.
How to Start Searching for a House
The next step in the journey to buying your first home is searching for houses for sale in Ireland. Check out our next guide for first time buyers ‘A guide on everything you need to know when house hunting’ for information on where to start looking for houses for sale and tips for house viewings.