Paying off huge debt - how long before we can apply?

changes

My partner and I have ended up in 31000 debt over the past few years. It is something we are thoroughly ashamed off and we have put a stop the spending completely. It has just simply been fighting the debt down over the past year. We are now starting a family and our parents have offered to clear our debt and lend us money for a deposit for a new home! We are over the moon. We will be paying the money back over 10 years (and can afford the repayments) so we're not simply being given this money.

My question is...once we have paid off all of our credit cards, how long should we wait before we apply for a mortgage? Our credit reports are fine apart from the high debt. We have never missed a payment. Once the debt is shown as paid off on our credit report, is it ok to apply for a mortgage straight away?

And are they likely to question how we managed to pay off all of the debt? Will the fact that we were given a bulk of money to pay off the debt harm us in anyway?

Any advice on what next steps to take would be much appreciated.

Thank you

RenovationMan

You should apply for a copy of your credit report from experion once you've paid off your debts. This is available free for a limited time, see Martin's main site for details. As you have not defaulted on any loans, you should be fine. If I recall from looking at my own report about 12 months ago, they just display the current balance (at at the credit report application) of your credit cards, mortgage and loans, not any historical information. Therefore your cards and loans will show zero and you'll not have a problem.

You might want to get rid of credit cards if you have a few or reduce the maximum loan amount on them to reassure your mortgage provider that you wont be wracking up any debt in the future. For example, if I were looking at a credit report and saw 5 empty credit cards, I'd wonder why you needed 5 cards.

There are also details on cleaning up your credit report (which it sounds like you don't need to do) on the DFW forum. Just ask those guys. First things first would be to get rid of that debt and any loans. Close down any credit cards you dont need and phone your loan providers to make sure that all balances are zero and closed. Wait a month or so for all of this to work thru the system and then apply for your free copy of your credit report.

Good luck!

Cannon_Fodder

As you are planning to repay the debt & deposit loan, you will need to declare it on any mortgage application as an 'outgoing'.

It will affect your affordability calculation.

Many lenders would likely decline on the basis of a loan being the deposit.


https://forums.moneysavingexpert.com/discussion/comment/29830167#Comment_29830167
Did the lease get extended? Are you still stuck in a deal until June 2011.

No point incurring Early Repayment Charges to leave that deal...

changes

Thanks for your replies. Reassuring points.

I know it's probably not legal but our parents are going to put it forward as a gift if the mortgage companies ask where the money came from. But we will pay them back privately. I know many won't agree with this but having seen a number of friends do the same it's a risk we may take. Although firstly we will check how a loan affects our affordability calculations incase we are still within range and can then declare everything upfront.

Cannon Fodder - We found that our lease is actually still on 80 years for a few more months which is why we're trying to sell now. We're also looking in extension costs incase it doesn't sell before this time.

yes there is a redemption fee but we are on such a high rate at the moment it is worth our while paying this and taking out a mortgage on a much more reasonable rate. With starting a family, we want to secure a new fixed deal asap as i've heard this can be difficult once i'm on maternity leave.

Cannon_Fodder

changes wrote: »

We have never missed a payment.

changes wrote: »

- Except we both have 2 late payment marks on our individual current accounts (we both stopped using our accounts and signed up to a joint account. This happened in July and August 2009.

...now we are really panicking about these two late payment marks we have (two each so four altogether!!).

Credit history not as squeeky clean as first indicated.

Might have trouble with the best lenders, from 4 late payments.

Thrugelmir wrote: »

If you've a 20% deposit. Why don't you pay off all your other debt?

As in a sense you don't have the deposit as you've borrowed it.

Not in a sense. You have borrowed it.

Lying on a mortgage application is fraud.

http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2009/mortgage-fraudster-sentenced-for-scam-on-the-woolwich-and-yorkshire-bank.aspx

Do not do it.

changes

Those late marks were removed! :-) We fought hsbc for 6 months because they didn't make sense, they weren't late payments, we simply had not paid money into our account those particular months (it was current accounts). The manager in our branch agreed and after LOTS of chasing up all 4 marks were removed! So credit report is now clear of all adverse marks.

Will think carefully about how we put forward the deposit money. Certainly don't want to get ourselves in trouble later. Our parents have already said that they would give it to us as a gift if the loan route was not possible and we could pay them back in the future. So if it looks too risky, one option would be to not repay them as a loan. Instead that money we would have been paying them could go into our savings account. But as a private thank you we'll give them a gift ourselves in a few years.

Do banks usually have anything against parents giving money as a gift? (not as a loan)

RenovationMan

Do banks ask where deposits came from? How do they prove that you haven't saved it up? Are banks really that careful, even post credit crunch?

I managed to arrange a 5x salary mortgage with just 4 payslips as proof and they never asked for a repayment vehicle (the mortgage is interest only). I dont know about other people's experience of getting a mortgage, but for me they don't seem to look too hard at your finances.

If you put your mum & Dads loan into a savings account and then if the banks asks where the deposit is coming from, you simply say "from savings". How can this be fraud? It's true, it is coming from savings

That link about fraud is hardly relevent to this case, seems a bit OTT if you dont mind me saying.

p.s. if banks stopped allowing the 'bank of mum & dad' from helping people with deposits there would be hardly any FTB's at all! I bought my first house in the 90's with a deposit provided by my parents (long paid back, let me assure you!)

Thrugelmir

changes wrote: »

I know it's probably not legal but our parents are going to put it forward as a gift if the mortgage companies ask where the money came from. But we will pay them back privately. I know many won't agree with this but having seen a number of friends do the same it's a risk we may take. Although firstly we will check how a loan affects our affordability calculations incase we are still within range and can then declare everything upfront.

There's nothing illegal in being lent money. The real point is that you've still got a committed outgoing for 10 years, albeit at a lower amount.