Have debt but parents putting down large deposit. Chance of getting mortgage?

ailuro2

Get him to buy another house and rent it out to you. You can then buy half once your debts are paid off. Simple, really.

For now, get rid of your debts and prove to yourselves you can live within your means.

Getting into debt and defaulting on your mortgage will leave you homeless, don't rush into it.;)

Radiantsoul

It does seem that your position will be much better once your loans are cleared. Banks are far more interested in affordability and it is not clear if you can afford the mortgage payments. I would advise that you have a word with a solicitor who can probably help you out with a contract that gives your wife an interest in the property.

I wonder about the commercial aspects of this. He is going to own 50% of the property and you are your wife will own 25% each. You will be making all the mortgage payments and he will be doing some work presumably for free. Assume that you sell in 5 years time and the house is now worth £250k what does he get back? Is it the £100k(his money back), £125(half the house) or his money back(£100k) plus half the remaining equity(£150k*50%)=£175k. You need to be pretty damned clear on this at the outset as you can see it makes a big difference and it is the sort of thing arguments are made of. And what happens if prices fall is also important. You also need to decide who determines when the property can be sold.

I can see the offer is tempting, but I would be nervous about accepting it.

Fjords

ailuro2 wrote: »

Get him to buy another house and rent it out to you. You can then buy half once your debts are paid off. Simple, really.

For now, get rid of your debts and prove to yourselves you can live within your means.

Getting into debt and defaulting on your mortgage will leave you homeless, don't rush into it.;)

I can live within my/our means, as mentioned my debts are more than manageable, I just don't like paying rent for someone else's mortgage.

My question was more around the possibilities of getting a mortgage with my debts in the current climate if i had a 50% deposit and buying it with our father in law. Not necesarily having a long argument if it's a wise thing to do or not as we have pretty much made up our mind.

It's not something that came up during dinner conversation and we said yes to there and then. We've talked about it, calculated it and doesn't matter what way we look at it, the outcome is better. By halving our monthly rent/mortgage payment we I/we have £450 more per month to spend on paying down our debts quicker AND we are paying towards ouw own house. We're also planning to start a family very very soon and it would be good to have a house sorted since we're planning to buy a "fixerupper".

Radiantsoul wrote: »

I wonder about the commercial aspects of this. He is going to own 50% of the property and you are your wife will own 25% each. You will be making all the mortgage payments and he will be doing some work presumably for free.

I can see the offer is tempting, but I would be nervous about accepting it.

Already spoken about this, he would own 50% and when we sell it he will get 50% of the sale price less half of any estate agent fees. He will do all work for for free. We will have to pay for all furniture (we have loads already), whitegoods etc. Structural repairs (paint, wallpaper, plumbing etc, garden repains etc. etc.) will be shared since it impacts the value of the house.

I will take onboard all of your advice, but we will still apply for a loan. I just wanted to know our chances of getting one

SouthCoast

Please keep us updated on your family business venture.

P.S. Have you prepared a business plan and cashflow forecasts?

getmore4less

50:50 is a sensible way to go for purchase and future investement.

There should be an element of rent for the 1/2 you don't own but I guess the FIL is happy to waive this.

Potential issue when it comes to doing it up is agreeing the spend level, something to look out for, might be a good idea to prebudget/agree when you find somewhere what you are going to do and how much this will be and how long it will take.

I would have a good think about where the wife sits if it came to choices, with you or her dad.

How are you going to fund your half of the costs? The debts are going to take some time to clear, and you will want the place 1/2 decent if you have family on the way.

Since the FIL will have to be on the mortgage as long as he has decent income streams then this may be OK at the level of borowing you are looking at. There is the issue of him not living there which may not be acceptable with all lenders. I would start with the banks you both use and see what they can offer.

There will also be the tax issue when you come to sell, FILs gains are subject to CGT assesment and this may influence when he may want to sell, if he has other gains in the same tax year he may want to delay and this could stop you selling when you want. Something to be aware of.

If the FIL is happy to invest in property and fore go the rent on his 1/2 this is a good opportunity while rates are low to get your finances sorted

£900pm rent into a £100k loan, you are still better off
based on repayment the rates can go up to
9.88% 25y,
9.01% 20y
7.02% 15y

on interest only 10.8%

Well not quite there are more cost with owning so the £900 needs to be reduced to reflect that say £750 that would be a I/O rate of 9% still good.

Has he enough money to offer you a mortgage at comercial rates this could be another option.

Given the loan to value you also have the potential option to still buy the place 50:50 but borrow a bit more to cover some of the debts and reduce there cost.

Since your 50% is fixed and will all be coverd by borrowing it does not change the ownership but may reduce you costs of borrowing and as long as you take a flexable loan you can overpay to bring this back down faster than you currently are.

This does secure the debt and if you sold early you would have difficulty and owe the FIL some money somthing you may not want to risk or the FIL may not be keen.

Having a family will impact costs and earning have you budgeted for that properly how will this effect the wifes DMP. I would aim for family when you are clear of the current debts not before and possibly the not til the wife has finished her DMP, kids are a big drain on resources do not underestimate that.

Fjords

Hi getmore4less,

Firstly, many thanks for such a comprehensive reply. It was very informative and you gave me some pointers and questions I hadn't thought about initially. Thank you..

getmore4less wrote: »

How are you going to fund your half of the costs? The debts are going to take some time to clear, and you will want the place 1/2 decent if you have family on the way.

Even though we both have debts we have £6k on a savings account. I am fully aware that the "moneysavingexpert"-way of doing things is to not save, but sink it all into repaying debt. However, this is our emergency fund, in addition to money we can spend on the house. And I will be more or less debt free by June 2010, earlier if we get the mortgage sorted out.

getmore4less wrote: »

Since the FIL will have to be on the mortgage as long as he has decent income streams then this may be OK at the level of borowing you are looking at. There is the issue of him not living there which may not be acceptable with all lenders. I would start with the banks you both use and see what they can offer.

This might be an issue, you are right. It could be that we might have to write some sort of "trustee agreement" with a solicitor which was mentioned above?

getmore4less wrote: »

There will also be the tax issue when you come to sell, FILs gains are subject to CGT assesment and this may influence when he may want to sell, if he has other gains in the same tax year he may want to delay and this could stop you selling when you want. Something to be aware of.

Good point! As I mentioned he has 4 other houses which he rents out and he has his own company for the running of these.

getmore4less wrote: »

£900pm rent into a £100k loan, you are still better off
based on repayment the rates can go up to
9.88% 25y,
9.01% 20y
7.02% 15y
on interest only 10.8%

We would definitely go for a repayment mortgage. No point in doing interest only.

getmore4less wrote: »

Has he enough money to offer you a mortgage at comercial rates this could be another option.

He does want to sell one of his houses as it's a bit too far away from where he lives and the tenants are a bit difficult. But of course, in this climate, it's hard to sell. If he does manage to sell it he could buy a house outright.

getmore4less wrote: »

Given the loan to value you also have the potential option to still buy the place 50:50 but borrow a bit more to cover some of the debts and reduce there cost.

This does secure the debt and if you sold early you would have difficulty and owe the FIL some money somthing you may not want to risk or the FIL may not be keen.

Both him and I want to keep my debts out of the equation. Easier that way

getmore4less wrote: »

Having a family will impact costs and earning have you budgeted for that properly how will this effect the wifes DMP. I would aim for family when you are clear of the current debts not before and possibly the not til the wife has finished her DMP, kids are a big drain on resources do not underestimate that.

My wife's DMP is finishing in 6 years(!!).....And we can't wait that long. We're not starting a family until next year anyway as that is when I am debt free. I have an monthly income of £2200 per month (plus a possible bonus of £3k-£4k per year) and with no debt (apart form mortgage). My wife's DMP is currently £250 per month. I'm fairly confident we will have enough to live on with a baby

We need to have another roundtable discussion before we continue our plan. I will keep you updated. Thanks all for you replies. It's what makes this forum worth it's existence.

Claremac

Your income is £2200 per month, your rent is £900, you pay £1,000 off your debts and your wife's DMP is £250? I make that £50 left over for food, insurance, transport, clothes etc etc...........

Fjords

Claremac wrote: »

Your income is £2200 per month, your rent is £900, you pay £1,000 off your debts and your wife's DMP is £250? I make that £50 left over for food, insurance, transport, clothes etc etc...........

Hello Claremac,

Very observant. I might not have been 100% clear in my postings, although I did say "we pay £900 in rent". My wife is in full time employment (she's in a school so it's more or less recession proof). Her debts are from her student days and early working years. She borrowed, as many others did, much more than she could afford hence we got her on a DMP. We're a "modern" couple so she contributes to half the rent, bills etc and pays her own DMP. When we start a family this may change, but I will then have no debts. Our finances are completly seperate (we're not linked on our credit reports).

Cheers

Zelie

Nope, never mind. I shouldn't take so long reading threads.