Mortgage with Debts

Percy1983

After more a general opinion right now.

Between me and my Financee we have combined debts of approx £22k. Actually income is around £25.5k after tax (31k gross).

A good half of the debt is down to 2 cars.

As it is we want a house and of course a mortgage to go with it.

Right now we are throwing everything at clearing debts and are doing very well, but of course we have no deposit as everything is going to debts.

Basically we want a house as soon as possible but what would a sensible plan be?

I could start saving for a deposit but then would be paying less off debts, should we reduce our debts further and then start saving for a deposit, if so what is an 'ok' level of debt.

As far as credit rating go we are both spot on, I will also add that house around where I am looking are £80k-£85k. We are first time buyers.

Any advice/opinions are welcome.

_Andy_

Personally I would suggest continuing to rent whilst you pay the debts off, then save,

nervousftb_3

i agree with _Andy_, it is probably better to pay off the debts first, and then start saving. the main reason being that having large amounts of debt will greatly reduce the amount you will be able to borrow for a mortgage.

you could reduce the debt to a low level and then start saving for a deposit at the same time, but to be honest i think you'd be in a much better situation in the long run if you got completely debt free and then started saving for the deposit. you don't want to have extra debts hanging over when you go for a mortgage, however small!

Percy1983

I can see the logic, if I had all the time in the world then I would just clear debts 100% then save.

There is 2 things wrong with that plan:

1, It will take the longest. (I will admit i am impatient)
2, Going with point 1, how long will house prices stay this low for?

Getting a mortgage sooner with some level of debt may not be the easiest but if house prices start rising again it then we could be talking a lot more money on the mortgage by the time I get one.

Would I have a chance of a mortgage right now? I don't plan applying just yet but how would my debt be considered in the avergae mortgage calulation?

Basically if we clear debts to a lower level and just have to balance a loan + mortgage for a few years then i will be happy with that.

I am more or less living like a hermit right now to clear my debts and using about 95% of my wage to clear things and pay the bills, in some ways I am glad of this as when it comes to paying a mortgage it won't be a shock to my system.

I suppose its down to how much income and expeniture I would have, I know not to get anything which goes right to my limit. If anything right now I would prefer a nice buffer which could be used to save or pay off remaining debts faster.

Joe_Bloggs

Would I have a chance of a mortgage right now? I don't plan applying just yet but how would my debt be considered in the avergae mortgage calulation?

There is no chance without a deposit and you have to tell your potential lender about all your loans. The key to success is to keep a perfect credit history. That way you can access the best deals when you eventually have a deposit.

The housing market may still fall as unemployment rises. Strict lending policies will add to the downward pressure on the housing price bubble.
J_B
Spell checked via the British English Dictionary add-on for Firefox 3.5

mortgagewizzard

Hi Percy1983

Firstly you will need a deposit of at least 10% to purchase a house at the moment, and 15% would be even better.

The way to work out whether you would get a mortgage with your current debts is the following:

Annual gross income
less
annualised loan repayments
less
5% of any credit card balances
equals
allowable annual income

As a rule of thumb, you can take your allowable and times by 4. this will give you an idea of the mortgage you are likely to be able to get. It is only a rough guide but it will get you somewhere close.

It's all very well getting a mortgage, but you must also be able to afford it! So it's important to work out a budget planner to make sure a mortgage would be affordable.

Hope this helps

Percy1983

Looks like I still have a long way to go, will having had a very high level of debt at one poin be a problem, I have always paid etc but in my young a stupid days it peaked at £27k.

I am already in the DFW forum, just a pain at the minute with so much going in interest, really trying to cut down my interest rates to cut down the amount of time it takes to pay everything.

SelbyJay_2

£27k? WOW!

Do you really need to two cars? Selling one could possibly make a big dent in the money you owe.

I'm in the same position. I owe £3500 on credit cards which i am desperatly trying to pay off. Fortunatly, all but £350 is interest free until April at the earliest. I've got about £10k in equity in my current home but need at least £15k in order to be able to move. I did consider stopping paying off the cards and saving for a bigger deposit, but one thing i've learnt since i bought my flat is that you never know what is around the corner and it always helps to have a little spare cash.

I'd shift the debt and give yourself a clean slate for the mortgage. Even if property does go back up, you'll owe less debt and will be able to take on a bigger mortgage, so it's all relative.