Would this be possible?

system15000

we are looking for our first home together and can't afford a deposit and one of our friends suggested taking a loan out for the 5% deposit and then leaving it a few months until we've made some repayments and then apply for a mortgage, is this a good idea?

AndrewSmith

Not really as your mortgage capacity will be reduced in line with the repayments on the new loan.

Eg:

If you borrow £10,000 costing £250 per month. The mortgage company will multiply £250 by 12, then deduct that from your salary before applying their income multiple to calculate your maximum borrowing.

example:

Salary £20,000 max borrowing approx £80-90,000 = 4-4.5 x your gross income

With the loan your max borrowing would be:

£250x12 =£3000
£20,000 - £3,000 = 17,000
£17,000 x 4-4.5x = £68-76,500

This would leave you in a situation with not oly a lower mortgage capacity but also a loan to pay.

Andy

system15000

in the money diet book it says you can use a cheap credit card or personal loan for a deposit rather than get an expensive 100% mortgage as long as you can keep a tight hold of your budget management.

herbiesjp

You can indeed do this - but what Andy is saying is that whateveer financial commitments you have will have an effect on what a lender will lend you.

It will decrease the mortgage amount a lender will agree for you, if you have balances on cards or a personal loan.

system15000

would that matter though if we were going for a mortgage based on what we can afford to repay back?

herbiesjp

I suppose it really depends on your scenario:

What is the purchase price?

What is your income/partner's income?

What mortgage would you want - what would be an ideal monthly budget for mortgage for you?

system15000

we'd be looking at around 95 to 100,000, we'd want a fixed rate and could afford around 620 a month