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Central Bank limits – Approval In Principle
Our Approval In Principle tool uses the sherpa’s own algorithm to assess if you are likely to be approved by the lenders.
The first hurdle to clear to get Approval In Principle is the central bank guidelines, all lenders have to conform to these . If the central bank computer says no, then you probably need to do some more work getting mortgage ready.
First is the deposit to loan ratio, only 80% of the purchase price can be funded through loans. If you are a first time buyer the good news is this is increased to 90% to help get you on the property ladder.
Second is the loan to income ratio, your loan can be no more than 3.5 times your joint income per year. So if your household earns €100,000 a year, your maximum mortgage would be €350,000.
Don’t despair though, if these limits put your dream home out of reach. The Central Bank also allows lenders a quota of exceptions outside the rules above, read on to find out more.
Exceptions – Approval In Principle
As the lenders only have a limited amount of exceptions, they want to parcel them out to the ‘best’ customers. If you are a lender this means customers with higher disposable income, as that generally means a larger mortgages that have very high odds of being paid back.
To get an exception then the secret is to maximise the gap between your income after tax and your financial commitments. We give you the inside track as to how the banks measure this below.
Watch out though, exceptions are a double edged sword. As well as stretching your finances to the limit. They often run out early in the year and can be withdrawn leaving your home purchase stranded.
Our algorithm factors exceptions as an extra risk to your approval in principle, but if you income is high enough this doesn’t need always to be a barrier to approval.
Credit policy – Approval In Principle
Above and beyond the central bank limits, each lender has their own credit policy, which they use to approve both exceptions and loan applications.
These policies though boil down to the same thing. How likely are you to pay back the mortgage?
The way the lenders assess this is to look at how much cash you have over after you have made your repayment. This gives them an idea of how much wriggle room you have if interest rates rise or your financial circumstances change.
In general only regular income after tax is counted, although some lenders factor in bonuses and overtime etc.. at a discount.
The secret though is cutting back your committed outgoings. These are loans, childcare or if you are divorced or separated your monthly maintenance.
Also the more family members you have the higher the level of disposable income you will need.
To pass the lender limits after taking into account your outgoings our mortgage approval calculator will have to see a healthy amount left over at the end of the month.
This is to take into account what might happen if mortgage interest rates rise in the future.
Mortgage calculators – Approval In Principle
You can also use our other mortgage tools to help you get approval in principle and mortgage ready. Check out our