Using loans for deposits

cashorcheque

Hi,

I realise I'm going to get a pasting for this. But my husband and I need to move to a new area and have put our house up for sale. There will be some negative equity but it will not be more than £5-10k (if it is, we'll have to resort to other measures). The underwriter at our building society has said that because we have never had a late payment in five years, have a good credit rating, and are looking to buy a house 20% cheaper than our current house, we can have a 95% mortgage (this is only agreed in principle).

We have applied, and also been approved, for an unsecured loan which we were going to use to cover the fees, negative equity, stamp duty and deposit. We have not gone ahead with it, of course, because we're not at the stage where we would need the money.

The loan and the new mortgage payments will together come to less each month than our current mortgage payments.

Obviously this is not allowed. I don't really want to hear people's moral objections, but rather to know if, once we have a firm mortgage offer (assuming that goes through), if that means we're through all the credit checks and can get a loan at that stage without the lender finding out. The lender said he would be more than happy for us to borrow all the money from our parents and get a loan once we're in the new house to pay them back with. The building society is prepared to lend us £300k based on our incomes and current debts and we only want £160k. So it seems annoying that we're allowed a loan now with our current mortgage payments, would be allowed one in the new house with those mortgage payments, but just can't use one to get to one place from another.

I know the legal reasons why not, but I just wanted to know if anybody else has done anything remotely like this.

clutton_2

""I know the legal reasons why not,""

i wish i knew what they were and why .....

clearly you can afford the new mortgage... and deposit......

have you tried talking to a mortgage broker ? sometimes different lenders have different criteria and you could get lucky somewhere else.....

Fire_Fox

The legal reasons are mortgage fraud, Clutton.

cashorcheque

Is the lender likely to allow us to get a loan to cover the estate agents' fees and moving costs, as long as it appears we are paying the negative equity and the deposit from our own funds? We have a lot of unused credit on our credit cards that we could use for that, and then consolidate it into a loan later.

Also, I told the mortgage broker about the credit card that has an outstanding debt on it (just a few hundred) but not about the two credit cards I have that don't have anything on them - was that wrong? I just didn't think of them, but perhaps I should phone him and tell him.

cashorcheque

Sorry - the other option we're considering is to get the loan, sell and move into rented. We would then have the leftover component of the loan (technically for home improvements) and could go to the bank with it as a deposit. Obviously then it would be declared that we had this loan but the only issue would be affordability, which is fine. Would that be right?

silvercar

The lender said he would be more than happy for us to borrow all the money from our parents and get a loan once we're in the new house to pay them back with.

So why not do this?

The legal reasons are mortgage fraud, Clutton.

Why is it fraud, if it is declared.

Obviously this is not allowed.

Sorry, its not obvious to me. You are completing all applications honestly so what is the issue?

cashorcheque

The reason we don't borrow from our parents and then pay them back later is that our parents don't have anything to lend us. Mine are doing up their own house and his dad is hanging onto his job by a thread.

The issue is that the lender will not allow us to use a deposit to move house, which is standard. You can't put down a deposit for a loan with another loan. So we would have to either pretend that we are now in the processing of applying for a huge loan for some other purpose, like buying a car (which is obviously not going to wash) or lie. Or not do it at all, obviously. But I've read a lot about other people doing this and wondered how they do it anyway - surely the mortgage company quickly find out if you suddenly take out a loan in the middle of it all.

neas

I think its a risky strategy and you know it inside. But if you can do it it might work.. might not.

Either way both situations (where you are now and new house) you are in debt... you have no assets you have negative pounds..

just make sure the jump doesnt make you into a debt spiral.. and really try to tackle debt...

cashorcheque

Thanks Neas. We would only do it if it brought our overall debt levels (including mortgage) down rather than up. That's why we're looking for a cheaper house so that we can make sure we can pay the debt as if it was part of our mortgage, if you see what I mean.

I am thinking what we might do is try to borrow just the deposit (£8-8.5k) from our parents on a short-term basis so that we can prove to the mortgage company and solicitors where it has come from, but then get a loan, pay the parents back, pay the moving costs etc.

I guess this means I will have to phone the bank and say 'we're getting a loan to make home improvements on our new property, pay our moving costs, and buy a car (or something) but the deposit is coming from our parents and we can prove this by showing bank transactions', and ask them to recalculate our affordability.

I know the bank manager isn't going to believe me, though.

silvercar

There are a lot of myths around. I got frightened by some of the comments on this board when I bought. We bought two houses on the same day to hold our chain together. So we were taking two mortgages from two different lenders. Our home loan was being transferred and increased, that application went through and was approved then we needed (wanted) to get the second property, so the second application went in to a different lender. All above board, all applications completed honestly.

Then this board frightened me by telling me that it was illegal or should at least be declared to the first lender that I was (a) borrowing another mortgage on another property and (b) the deposit on the second house was really coming from the mortgage on the first.....which people reckoned was fraud or illegal...

Anyway I phoned the first lender and told them what we had now planned and that this decision was made after the mortgage application had been made. They weren't bothered or interested. I told the second lender that we were moving our main home on the same day and increasing that mortgage and as the houses were in the same chain the deposits for each were all intertangled, they said the application would stand on its own merits and that wasn't relevent to the application. We got the second mortgage and all went ahead and we moved.

This was a few years ago when borrowing was easier, but the law on what is illegal and what is fraud hasn't changed. It may be easier if you either had the loan before you made the applicaiton (or didnt take it until later) to avoid the lender questioning why you have take a loan between application and completion, but I wouldn't get hung up on earmarking funds for different purposes. AFAIK the only thing that is mortgage fraud is to lie and obtain money by deception.

cashorcheque

Thanks Silvercar - so just to clarify, are you saying that, if we postpone the loan application until after the mortgage has been approved (I take it firm offer, not agreement in principle), then that's fine because we declared all our debts honestly at the stage we filled out the application?