# How to be in good position to purchase second home



## Newbie! (19 May 2008)

Age: 28
Spouse’s/Partner's age: 29

Annual gross income from employment or profession: 42,000
Annual gross income of spouse:45,000

Type of employment: e.g. Both public servants

In general are you spending more than you earn or are you saving? saving

Rough estimate of value of home: 380K
Amount outstanding on your mortgage: €350K
*What interest rate are you paying? 4.9%*
We also overpay by €200 per month so have lowered our mortgage term by 6years. Still have 27years left though! Our total mortgage repayments after tax relief are €1750.

Other borrowings – car loans/personal loans etc
Car loan: €15k - repay €460/month for another 27months.

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 

Savings and investments: €5,000 in bank, €2,500 in credit union. We save €750 per month, which increases to €1250 per month in July. 

Do you have a pension scheme? Yes, both of contribute to government pension with jobs. 

Do you own any investment or other property? No

Ages of children: none

Life insurance: not sure of the details!


*What specific question do you have or what issues are of concern to you? *
We bought our house at the peak of the market and have spent most of our savings renovating it. Our home is in a part of Dublin that is desirable for renters and at the moment would fetch about €1200 per month in rent. We hope to get married in the coming 15months and are currently saving for this. This is why we havent put our savings into our car loan. 

We know we will manage to pay for our wedding ok but the longer term plan is buy a bigger home in about 5/6 years. Ideally we would like to keep our current home as a rental property but we're unsure if this is completely unrealistic. So our questions are:

1. Are we doing alright with our current saving/spending patterns?
2. What sort of position would we need to be in for a bank to consider letting us take out a second mortgage?


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## eileen alana (19 May 2008)

No on knows what condition the housing market will be in 5 or 6 years time perhaps you should wait and see what happens, in the meantime concentrate on reducing the debt you have rather than taking on more.


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## Brendan Burgess (19 May 2008)

You have 30k equity in your home.

You have 7k savings.

You have 15k in other borrowings.

You have an expensive wedding coming up. 

Don't even be thinking of buying a second home. You need to get your heavy borrowings down and you will need to build up more equity in your home before you can think of buying a second home. 

Stamp duty will be a big cost of any trading up, so you will probably have to sell your existing home to finance it. Even if a bank did lend you the money, it would not be a good idea to increase the lending to salary ratio any further. Although your home may be in a lettable area, you would not be in a good position to handle any vacant periods or periods where your tenants don't pay the rent.

Brendan


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## rmelly (19 May 2008)

> We also overpay by €200 per month so have lowered our mortgage term by 6years.


 
Are you saying that you have reduced the term by 6 years already (without continuing the overpayment) , or that continuing your €200 overpayment in the long term will reduce by 6 years?


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## MrKeane (19 May 2008)

If you are planning on having kids (lets say 2) then you would probably spend a fortune on food, chilcare etc. etc. where would that leave you?


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## Newbie! (20 May 2008)

rmelly said:


> Are you saying that you have reduced the term by 6 years already (without continuing the overpayment) , or that continuing your €200 overpayment in the long term will reduce by 6 years?


 
Sorry, if we continue with the €200 overpayment, we will lower the term by 6 years.




> You have an expensive wedding coming up.
> 
> Don't even be thinking of buying a second home. You need to get your heavy borrowings down and you will need to build up more equity in your home before you can think of buying a second home


 
We have no intentions of looking to buy for another 5/6 years. This is not a plan for now, it's more a medium term plan to position ourslves a little better. We dont really plan to have a big wedding either. 

Are we dreaming that this is something we could do in 5/6 years?


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## so-crates (20 May 2008)

In six years, what will be your approximate equity in your home? What will be your savings? What will be your borrowings? I know you can't answer this easily but I think you need to look at it from that perspective before deciding that in 5/6 years you will be able to afford to buy a second home. You can make a few educated guesses though.
Chances are the wedding will wipe most of your savings - even small weddings are not cheap, which leaves you still with the debt to pay off and your savings to rebuild.
Assuming that the wedding is year away and afterwards you continue with your saving €1250 pm, in five years (ignoring interest and assuming you don't touch it or change it and assuming you are paying off your car loan and that you don't take out another) that will be €75000. Seems like a nice number expecially combined with the hopeful increase in your equity in your home. 
However, how likely is it? Will you be able to sustain that level of savings for that period of time, continue making those sacrifices? Are you planning to have any of those expensive little bundles of joy in the interim? Which will dent not only your ability to save but may curtail your ability to earn. In other words is it reasonable to look at that as the amount of money that will be yours to call your own? Then think about the cost of purchasing a new and bigger place, what sort of cost will it be? In six years time what sort of mortgage term will you be able to get? Will your savings & equity be enough to cover the initial cost of the new home? Will it be enough to get you through that initial patch where you will be moving out and trying to rent out your old home? 
I am not saying it isn't doable, I think you just need to sit down and seriously look at some of these questions and try and answer them before planning what you are going to do.


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## coppers (21 May 2008)

I suspect you should stop overpaying your mortage on what will eventually become an investment property. Re-direct the money towards a deposit for second home.

Follow this link to understand why..
http://www.askaboutmoney.com/showthread.php?t=6217


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## Maid Upname (21 May 2008)

Orig poster - well done on a healthy financial status ... it brings me back to my single years - could buy anything i wanted could go whereever i wanted - time and money were my own. 
DH and i are both quite good earners (well average you know - me 62k and him 48k) .... we now have 3 children and dont have an extravagant life style or social life - like an italian and a bottle of plonk everynow and again but those little beauties are wiping us clean by the end of every month.  I was always told that babies are expensive listened but didnt grasp the true meaning of the words.
Currently our childminding is 1400 per month and our school (well preschool fees) are 3100 per annum.
The past 6 mths has been the first time that my DH and i have been finding we are always broke - had to stand back and have a look at why ... everything is gone so expensive and interest rates for mort have made a huge difference ... once upon a time i didnt know what the repayments were just knew they went through ... now i do to the penny !
so if i were you id hold tight and feel comfortable i feel we are in for a bumpy ride yet before things settle !
good luck with the wedding and all after. hope you make the right decision for YOU !


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## Guest117 (21 May 2008)

Listen to Brendan and Socrates

You are paying how much per month on your mortgage ?  say € 1700+ and you think you might get rental of € 1200. Factor in maintenance costs, rental costs etc and it does not look like a good investment unless property prices are rising appreciably. That is not the case today

5-6 years time - well who knows. If the market changes a lot and you are earning more then maybe it will make financial sence


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