developers deposit???

armandog

Hi there,

I feel like i'm going round in circles with brokers and developer telling me different things.

We were offered the chance for a new build (someone dropped out, very small but trustworthy developer) who needed a 3k deposit asap. I took out a loan for this and am now half way through saving for the lender deposit 10%.

What no one can tell me is if the 3k means the house will cost me 134,000 and not 137,000 or if I can use the 3k towards my 10% deposit? If so would I provide proof of 10,700 in my account and then ask for certification of the 3k in developers/solicitors account?

Would lenders accept this as the full 10%.

A very confused first time buyer (I know it's a new build but have found acceptable mortgages at tat ltv for me).

Please help guys.

ACG

What is the purchase price?
What was the £3k for? What did the lender say will happen to that?

With all respect... why have you put £3k down without knowing how it would work?

armandog

Thank you for your quick reply.

The purchase price is 137,000 and the 3k is written on my receipt as a non-returnable deposit. I understood that the 3k would reduce the purchase price to 134,000. However on speaking to brokers they tell me that this is borderline immoral/illegal and it is in fact money i can use towards a mortgage deposit.

as I have taken out a loan for this 'deposit' it will hamper my chances of a mortgage though. I want to know if i can legally use the money as a deposit, i would then pay off the loan i used to pay the amount and be on the way to my goal. I just did not think taking a loan for this was considered a typical lender deposit otherwise i would have thought twice.

ACG

The purchase price is £137k then and not £134k.

There are not many lenders who will allow you to take out a loan to form a deposit. I think this builder has either shafted you intentially or caused a very big problem by mistake. Either way the loan has not helped the situation.

I think you need to speak to the builder, explain the problem and see what they say. See if you can get the £3k back and sign something to say if you pull out you will pay him £3k maybe? I dont know how you would resolve this but it could be quite complicated.

armandog

I totally understand and many others currently live on the houses developed on the site so this has all been above board I just don't think i'm fully grasping it. It is my understanding the 3k was to know that I am serious as he has had a ridiculous amount of interest. In Cornwall affordable housing is nil! I can now afford to pay off the loan and be well over half way to the 10,700 that i would need if the 3k can be used as part of my deposit. My loan would then not be an issue paid an null. No?

ACG

If the loan is paid off that sorts that issue out.

The issue is resolving this £3k.
Maybe once you have a valuation booked in he will refund that £3k back to you?

I think you need the builder to play the game with this.

armandog

thanks, would evidence of 3k in his solicitors account plus my 10,700 satisfy lenders criteria?

ACG

Im not sure.

It would need to be discussed with the underwriters.

armandog

a text from the developer on the above reads " not sure, we don't really get involved with mortgages but i think the bank allows that payment as part of the deposit"

scottishblondie

I'm not an expert, but I don't quite see what the issue is. The £3k you have paid basically sounds like a reservation fee, which is taken off of your final amount to pay to the developer on completion.

Admittedly it is much larger than the normal reservation fee for a new build - I paid £250 - but I would have thought that the principle is the same? The £250 I had already paid was perfectly acceptable to my lender as part of the deposit.

I think the fact that you took out a loan to pay this deposit is a separate issue which doesn't have anything to do with the developer, unless you "borrowed" this money from him?

armandog

thanks i guess what i am trying to get my head around is does the 3k come off of the deposit i need to pay ie 10,700 rather than 13,700 or is it just deducted off the final amount i need to pay the developer.