mortgage company valuation price vs actual paid price- spare funds?

rosepinkfluff

Hi
As a new comer to both the forum and the property world I'm in need of some advice so would be grateful if anyone can help! I'm trying to work out if we can take a mortgage out based on the mortgage companies valuation price and then 'pocket' any extra we negotiate off the price below this to fund moving costs etc..

My boyfriend and I are currently looking to buy together, I am a first-time buyer, he already has a house which I currently live in with him. We will be using the money from the sale of this as our 10% deposit for the new house however we are stretched in terms of all the other fees etc which go with the selling/buying process and having anything spare to do anything to the new place.

We've spoken to the vendors of the property we're looking at and they have told us the price is very much open for negotiation (they've not had much interest and are an elderly couple who have lived in the house for over 20 years).

It's currently on the market at 225,000, we are hoping our mortgage provider will also value it at this price. Assuming the mortgage provider do value it at 225,000 can we take out a mortgage for 90% of this 225,000 even if we negotiate the vendors down to an eventual sale price of 215,000? (i.e leaving us with 10k spare - with which we can pay off any fees and possibly have some left to do up the new house) or will the mortgage provider only give us 90% of the actual purchase price, say 90% of 215,000?

if we can do this how does it all work? does the mortgage co. give the solicitor the money (i.e 90% of 225,000), we give the solicitor the remainder of the funds up to the final sale price- say 215,000?

Sorry its so long I hope this makes sense! any help in answering this would gratefully recieved.. is their a 'name' for this process? it seems to me that it must be quite common- but then I'm a bit new to all of this!

Thanks very much

getmore4less

Borrowings will be based on the lower of the Puchase price or valuation.


You need to fund the deposit and costs with extra real money

rosepinkfluff

Thanks very much for your quick reply.

'Real' money is hard to come by round our house at the moment! The deposit money is real and potentially we could cover a fair whack of the fees with real money however the property needs a rewire etc which is how much of any extra funds would be spent..

Is a way round this potentially to ask the vendors for a cashback deal? i.e we offer the full valuation price with a separate agreement with the vendors for a cashback sum on completion? We've spent quite a lot of time with the vendors and gone through work that needs doing on the property etc and they seem friendly and accomodating- is it worth asking them in terms of the practicalities and legalities of doing this, would we have to pay a solicitor to draw up a separate contract to arrange this?

sorry so many questions!

Conrad

Sometimes separate cashback style deals are made, but lenders will only ever lend against the value, so the valuer will need to agree with any 'higher' price you make.

The solicitors are bound in law to make lenders aware of any such cashbacks and it is this that tends to kill such a deal as the ,ender wont entertain such.

People still make 'private' arrangements but most sellers will not want to entertain it. If they do, then they use a completely separate solicitor.

This is naughty though and not something I would recommend.

ginvzt

They have lived there for 20 years, so even though they seem friendly and accommodating, don't forget sentimental value to them.

If the house is on the market for £225, I think it is unlikely that this is what it will be valued at by mortgage company. Have you looked for what sums other houses in the street/area sold recently? And if they were to give you £10k back or whatever, I think it would count as vendor gifted deposit and it would have to be reported back to lender.

rosepinkfluff

Thanks to all of you who have replied so efficiently!

I think we obviously need to be careful on the valuation as it stands at present as there is a huge amount of sentimental value from the owners- we have looked into others in the area and it seems reasonable- we'll have to see what the mortgage company come back with as a value firstly and then work from there I guess.

As for the vendor gifted deposit vs doing the same thing on the side (in a naughty way) I think we want to stick to the rule book, and I'm sure the vendors would too- it sounds like it could get messy. When we know what the score is in terms of the valuation and agreed sale price with the vendor then, if needs be, I guess we need to look around for a lender who will accept some vendor gifted deposit as part of our deal and thus leaving us with hopefully some spare cash for fees and work on the new house from the sale of my boyfriend's house rather than having to pile it all in to the deposit!

Does anyone know if lenders will still accept vendor gifted deposits in the current market when looking for a 90% LTV mortgage?! (it's not a new build property where I know more caution is being taken on these things..)

Conrad

There are no vendor gifted deposit schemes unless a blood relative.

I think you need to accept you will have to buy as is and gradualy do the work, or walk away from this one.