Loaning amount from family member advice

GazzahA

Apologies for the long thread just trying to explain my situation

I am selling my house at the moment which has a 20k mortgage on it. This should be completing soon fingers crossed as it is 2 and a bit months in. Completion will pay off mortgage, then in effect I have 400k cash in bank.

I have just had an offer accepted on a house I have seen for 426k
I can raise 400k to put toward it. That leaves me £37300 short if I include stamp duty. Say £40000 if I include fees surveys etc.

Now the house is liveable but will need refurbishment. It is a probate house so there is no onward chain so the quicker I can get it completed the less time it has to fall through as there was quite a bit of interest in it.

I plan to do it up live in it with wife for maybe 2 years then sell.

I want to get in it and THEN sort out whether I want to extend or just gut it and do up whats there depending on cost.

Mortgage wise Im pretty sure I can raise 120k so that's the 40k i'm short, leaving me 80k to do whatever I want to the house. However I don't really want to arrange a 120k mortgage to later find I have wildly overestimated a build spend and end up paying interest on a mortgage I dont need.

Having spoken to my mother in Law and my mum either would be willing to lend me the 40k to get the house.

This would then give me time to figure out how much I could do the house and at what cost without worrying i'm paying interest on a mortgage I'm not using.

Once I have refurbishment figures I would apply for a mortgage loan to get the work done and use 40k of it to pay back mum(s). Is this possible?

Not sure if this is the best way to go about things and how having no mortgage for maybe a few months would affect my credit rating to get one in the future.

Anyone think this is a bad idea?

Annisele

I think you've got a few issues mixed up in that (and almost certainly some more than I haven't thought of). In no particular order...

I think money + family is generally a bad idea, so I'd be reluctant from that perspective alone. But if you do go ahead, make sure everything is properly documented and everyone is on the same page. Will you be paying interest? At what rate? Will the capital be repaid all at once at the end of the term, or monthly? What is the term? (An unspecified "time to decide" might make me nervous as a lender). What happens if you/your wife/your mum/your MIL die/ get divorced/need immediate access to their cash for some reason? Will their loan be secured on the house? Will they be entitled to any uplift in its value?

On the future mortgage issue, yes, it's theoretically possible to do what you're suggesting. You'd perhaps struggle to get a mortgage within the first six months, as many lenders don't like lending to people who've only just bought.

Some lenders also don't like further advances for the purpose of debt consolidation (which is effectively what you'd be doing). However, your very low loan to value would reduce that concern a fair bit.

I'd also be concerned about a mortgage for the purpose of refurbishment. If you're talking a lick of paint, there'll be no issue. If you're talking knocking the whole thing down and starting again, you'd need a mortgage aimed at developers rather than a normal residential mortgage (and the criteria for those are different). My guess is that you're somewhere inbetween - but depending on how far you are towards the "knock it down" end, you might get mortgage issues there.

I don't think there'll be a problem with you not having a mortgage for a few months.

Any particular reason you don't just get a mortgage for the £40k you need?

Prothet_of_Doom

Annisele wrote: »

Any particular reason you don't just get a mortgage for the £40k you need?

Or Take the £400K, add a mortgage of Say £126K, with £300K deposit, plus fees and stamp duty and have about £80K to fix it up .

silvercar

Have you thought of an offset mortgage? You take the full amount as a mortgage but only pay interest on the amount you withdraw from the offset, so effectively the mortgage is as small as you want, but the money is there for as/ when you need it.

strongboes

surely just get one with no erc.

GazzahA

Thanks for the replies. i assumed the thread would email me if I got a reply but it doesn't, I just found them by checking back in.

Ordinarily I agree borrowing and family don't mix but our mums are easy going and we have discussed a payment plan which would be drawn up.

I can get a mortgage for say 120k but then I am paying for it while trying to figure out what to do with the house, this is not the end of the world but just trying to save where possible for unnessesary expenditure.

Basically it is liveable but will need a new kitchen, probably plastered ceiling, flooring, garden needs sorting so not a rip it down job but definately more than painting. Just not sure how much all this would cost and if I could maybe stretch to a small extension. Again would probably sell within a couple of years to do the whole thing again.

I have found mortgages with no early repayment charges but if I borrowed 40k just to get the house they will not lend anymore for a further six months which again leaves me in the position of either borrowing 40k and waiting 6 months to do any work or borrowing my max and paying interest while trying to price what I need to do.

Offset mortgages I was looking at any good links to any would be appreciated. I was googling Drawn Down Facility Mortgages as that's what I thought they were called.

Again cheers for the replies