Pay off loan and cards before getting a mortgage?

gax23

Hi all,

Looking to start getting quotes for mortgages later this year. I currently have a personal loan outstanding as well as a (nominal) outstanding balance on a credit card (from a 0% balance transfer). Is it advisable to pay off these debts before trying to obtain a mortgage, or will it not make too much difference? Should they be completely cleared or should I put more of my resources into saving the deposit?

beecher

HOw much of a deposit will you have and what's outstanding on your cards? The amount of debt you have will be taken into consideration when banks work out what they can lend you - what's your salary and amount you want to borrow?

gax23

I currently have around £9,000 saved up. My girlfriend leaves university in June with no student loans or debt, but £4,000 in savings.

I'm self-employed and my salary is around £25,000. My girlfriend will earn roughly the same amount at first when she leaves university.

I have around £1,000 outstanding on the 0% balance transfer card, and around £9,000 outstanding on a personal loan (with around three years left, I believe, but I can overpay to reduce the term).

We'll borrow whatever we can, really. I work from home so we need two bedrooms (or a basement, etc.) and the properties we've been looking at are in the 150-170k range.

beecher

The £9,000 loan is likely to have an impact on how much you can borrow. I'd be overpaying as much as possible. If you're looking at 150-170k properties you're going to need at least 15-17k plus fees so you have a wee bit to go yet, though hopefully they'll be a bit cheaper by the time your gf has been in her post long enough to apply for mortgages.

gax23

Thanks for your advice. I forgot to mention that I also have a £3,000 overdraft (bank keep increasing it even though I have only ever dipped into it for a day or two by about £50!). Is it worth reducing this to, say, a few hundred pounds as a buffer or will it not affect our mortgage chances? Not sure whether it has an effect seeing as it's not debt, but is available credit. Does the same go for active (clear) credit cards?

kier333

Hi,

You will struggle with the deposit of 9k ie you will need at least 10% so around 15-17k, and then the rates are not great although i just went with one yesterday HSBC.

Robert_Sterling_3

gax23 wrote: »

I also have a £3,000 overdraft (bank keep increasing it even though I have only ever dipped into it for a day or two by about £50!).

I thought you owed the bank £3,000.
I now realise that you have not got a £3,000 overdraft you have got a £3,000 overdraft facility. i.e. You could have an overdraft of up to £3,000.

gax23

kier333 wrote: »

Hi,

You will struggle with the deposit of 9k ie you will need at least 10% so around 15-17k, and then the rates are not great although i just went with one yesterday HSBC.

I know. I've already said we're not looking to buy yet. That's why we're looking to find out this information first. In fact, we'll need a lot more than 10% as I'm self-employed and my girlfriend will be newly employed.

gax23

Robert_Sterling wrote: »

I thought you owed the bank £3,000.
I now realise that you have not got a £3,000 overdraft you have got a £3,000 overdraft facility. i.e. You could have an overdraft of up to £3,000.

That's correct. Will I need to reduce it, though?