Loan as deposit for mortgage?

bambi26_2

Hi All,

I have a specific question I am trying to find answers to, help would be appreciated.

Can a loan be used as a deposit to purchase a property?
is this legal?

Most of the time, deposits come from savings or gifts, I wondered if a loan can be used?

Many Thanks,

Bambi

19lottie82

My view on this (not saying it's correct, so you may need clarification) is....

Yes, it's legal, but I don't think it would work. You would need to declare this when applying for your mortgage, and it would NOT fair well in your application process.

Do you need a loan for just the deposit, or for legal fees and furnishings too?

If you can't afford to save up a deposit, do you really think you'll be able to afford a mortgage AND an unsecured loan with a stupidly high interest rate? It's a financial carcrash waiting to happen IMO

bambi26_2

Hi thanks for your reply.

No no thats not the case. I have a deposit. Just someone asked me the question of the loan as a deposit.....

i did not have answer to this so am posting it here.

I see what you mean, although its legal. Payments would be made for both loan and mortgage...thats silly.
thanks

19lottie82

no problem OP. As I said I'm not 100% sure my advice is correct so hopefully someone else will post. However I think the main problem (apart from the common sense issue of 2 sets of expensive monthly payments) would be that when a bank is deciding whether to approve your morgtgage app, they look at your monthly outgoings, and large unsecured loan payments would not look good and would also decrease your affordability rating.

Credit-Crunched

Legal yes, if declared as source of deposit.

Chance of getting a mortgage with this route, slim to none.

Due to:
- Additional financial commitment
- no evidence of being able to save on a monthly basis
- almost foolhardy actions and not cohesive with someone who is financailly dependent and

lenders would run a mile from this, lots these days do not even like gifts from family as it does not show any ability to save on a monthly basis

19lottie82

Credit-Crunched wrote: »

lenders would run a mile from this, lots these days do not even like gifts from family as it does not show any ability to save on a monthly basis

really? i find this very hard to believe. you don't need to save every month to pay a mortgage, you just need to prove that you can afford to pay it every month, based on your salary / income.
i got my deposit through inheritance, and when i was hunting about for the best mortgage deal, my IFA didn't mention anything in regards to what you have suggested.

I'm not trying to start an argument or call you a liar OP, just interested to find out if this is actually the case!

claire16c

How would they know if the money was a gift? Say a parent gave a child 10k in cash - which they then paid into their account. Whose to say they hadnt been stuffing it under the mattress themselves for years?

sonastin

More like the lenders want to know that you don't fritter your entire income every month. If you have been diligently paying rent every month, that also shows the commitment necessary to pay a mortgage. What is more likely to been seen as a lending risk is someone who's been living at home, never paid rent, unable to save anything and wholly dependent on the bank of mum&dad for the deposit. Such a person has shown absolutely no indication that they are conscientious enough to use their income to pay a monthly mortgage.

19lottie82

claire16c wrote: »

How would they know if the money was a gift? Say a parent gave a child 10k in cash - which they then paid into their account. Whose to say they hadnt been stuffing it under the mattress themselves for years?

I'm not sure, but I think legally, you might have to declare the source of your deposit (hence the problems with using a loan).

CLAPTON

when one applies for a mortgage they will ask what loans etc you have
they will ask the source of your deposit
when the mortgage provider does a credit search they will see what loans and CCs are outstanding

at the very least they will reduce the max loan they are willing to provide and at worst refuse.

19lottie82

sonastin wrote: »

More like the lenders want to know that you don't fritter your entire income every month. If you have been diligently paying rent every month, that also shows the commitment necessary to pay a mortgage. What is more likely to been seen as a lending risk is someone who's been living at home, never paid rent, unable to save anything and wholly dependent on the bank of mum&dad for the deposit. Such a person has shown absolutely no indication that they are conscientious enough to use their income to pay a monthly mortgage.

I assumed, based on logic and my own experience, that if you had a gifted deposit, had a decent salary and passed a credit check - this would be enough for a lender to approve your mortgage application. Surely this would tick all the boxes? I struggle to picture them asking for proof that you ahve been paying rent every month for a regular period, or scouring your bank statements for evidence of reckless spending?