Paying off debt then buying a house, advice needed

weston800weston800 Forumite
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Hi all,

Sadly we lost my Father-in-Law in March so it's been a very tough few months. This sounds awful but trying not to beat about the bush; my partner has decided that he'd like to pay off both mine and his debts once the inheritance arrives...

We have around £29K debt between us which I know is pretty shocking.

We have also been saving for a deposit for a house for around 2 years (using the Help to buy ISAs).

Before my FIL passed, we realised we could be debt free as well as buy a house within the next 2 years providing we're very strict but obviously now, it'll be more like 6 months.

A few people have advised us not to clear all of our debts as our credit reports will go 'wappy' and I just wondered what other peoples opinions were on this? I am pretty clued up on credit scoring and I understand lenders don't want to see someone having a lot of credit available to them that isn't being used but what's a safe amount to have available? We need a mortgage lender to see we are responsible but not sure the best way forward.

We won't be able to use any of the inheritance towards our house deposit as it'll all be spent once the debts are paid (and a few other items needed).

I don't know if this is necessary but I'm 29, my partner almost 27 and we earn £38K between us, no children (living in the East Mids)

Any advice is greatly appreciated.

Thanks,

Emma

Replies

  • EssexHebrideanEssexHebridean Forumite
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    Firstly I'm sorry to hear of the death of your Father in Law.

    I guess the first question is how your credit histories look at the moment? Do you have defaults or worse showing?
    Is any of the debt on 0% currently?
    Have you worked out a budget that you can stick to and allows you to afford the mortgage payments etc, and have you actually been living within the means that the budget sets out?
    Have you established in your own minds what the cause of the debt in the first place was,. and has this been successfully tackled and dealt with?

    I'd be inclined to say that if any of the debt is, or can be, on 0% then as long as the figures stack up you might do better bolstering what you can get in those help-to-buy ISAs to give you a bigger deposit, and still work towards a slightly longer end game with paying stuff off. The compromise could be to pay off anything that's interest bearing and leave 0% stuff ticking along on a plan that will see it gone by the time the 0% rates finish, and maybe look to buy in 12 months rather than 6?

    Also think about sticking aside £1000 for a ready made emergency fund.
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  • weston800weston800 Forumite
    41 Posts
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    Firstly I'm sorry to hear of the death of your Father in Law.

    I guess the first question is how your credit histories look at the moment? Do you have defaults or worse showing?
    Is any of the debt on 0% currently?
    Have you worked out a budget that you can stick to and allows you to afford the mortgage payments etc, and have you actually been living within the means that the budget sets out?
    Have you established in your own minds what the cause of the debt in the first place was,. and has this been successfully tackled and dealt with?

    I'd be inclined to say that if any of the debt is, or can be, on 0% then as long as the figures stack up you might do better bolstering what you can get in those help-to-buy ISAs to give you a bigger deposit, and still work towards a slightly longer end game with paying stuff off. The compromise could be to pay off anything that's interest bearing and leave 0% stuff ticking along on a plan that will see it gone by the time the 0% rates finish, and maybe look to buy in 12 months rather than 6?

    Also think about sticking aside £1000 for a ready made emergency fund.


    Hi, thanks - we're getting there slowly.

    No defaults or anything bad, both our scores on ClearScore are around 450.

    There is only interest on a loan in my partner's name plus overdrafts we both have. Our credit cards are 0%.

    My debt has been ongoing for around 10 years, it was a lot worse when I was younger (I was young and naive and just kept spending credit) so my debt hasn't increased but my partner is different - he didn't have any debt around 4 years ago but now has a lot, his car and motorbike went kaput at the same time so he sold the bike and then got a loan to buy a more expensive car but we've had nothing but trouble with the car so have ended up spending a few thousand fixing the thing! He spends on his credit card occasionally but is pretty much under control now, we pay more than the minimum payments each month.

    We pay the maximum into our ISAs as well so the plan is to save into a savings account as an additional pot for the deposit once the debts are paid - we can't save more at the moment as we're using the majority of our income to pay higher amounts off debts and travel costs (we pay a combined £750 off debts monthly).

    Once we move, our commute costs will reduce from £500 a month to £200! We have done a thorough budget for when we buy a house and we should be much better off financially (providing we pay debts off fully).

    We are not high earners so currently don't have a lot of disposable income (around £100 each per month).

    We will definitely have an emergency fund once the inheritance arrives. My partner likes the idea of several savings accounts for different things and I do agree with him.

    We are hoping to get a 30/35yr mortgage on a house no more than £150K. We have a 5% deposit already so once the debts are paid we'll have plenty of disposable income to plow into the separate savings account for a bigger deposit.

    We would consider 12 months if needed, we're just desperate to get out of my Mum's house - we moved in with her initially (2 years ago now) to save to buy a house but didn't think it'd take this long! Moving back home is hard :rotfl:
  • EssexHebrideanEssexHebridean Forumite
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    Oh heck yes I can understand why you're keen to move on again then - tough situation!

    One word of advice I will give you - get a mortgage that allows overpayments from day 1 - even during an initial fix. A lot will allow 10% of either the starting figure or the capital balance at the start of a year in overpayments. work out how much you can overpay and set it up from the start making sure to advise that it's to reduce the capital balance outstanding not to reduce the term. play with figures in the MSE overpayment calculator to see the true benefit.

    I also agree with your partner's idea about different savings pots for different things - it's a great way of budgeting for things. For a start can I suggest setting some of that saving on commuting costs against the future cost of a replacement car to avoid you needing to use a loan again? Shout up if it helps to know how we organise our "savings pots" as it's the way we've done things for nearly 10 years. :)
    🎉 MORTGAGE FREE 30/09/2016 🎉
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  • Ignore your "credit score" it means nothing, what does matter is your "credit history" defaults etc
  • weston800weston800 Forumite
    41 Posts
    Seventh Anniversary 10 Posts Combo Breaker
    Forumite
    Oh heck yes I can understand why you're keen to move on again then - tough situation!

    One word of advice I will give you - get a mortgage that allows overpayments from day 1 - even during an initial fix. A lot will allow 10% of either the starting figure or the capital balance at the start of a year in overpayments. work out how much you can overpay and set it up from the start making sure to advise that it's to reduce the capital balance outstanding not to reduce the term. play with figures in the MSE overpayment calculator to see the true benefit.

    I also agree with your partner's idea about different savings pots for different things - it's a great way of budgeting for things. For a start can I suggest setting some of that saving on commuting costs against the future cost of a replacement car to avoid you needing to use a loan again? Shout up if it helps to know how we organise our "savings pots" as it's the way we've done things for nearly 10 years. :)

    Thanks :) Yeah I've had a lot of people tell me to pay more each month off the mortgage if we can (I'll ensure we get a deal that allows us to do so). A colleague paid £100 per month as an addition many years ago and it look 10 years off their mortgage! Obviously house prices were a lot cheaper 30 years ago but definitely worth it.

    That sounds like a good idea, we want a 'car fund' anyway so the reduction in travel costs could go in that pot.

    Yes please, if you wouldn't mind advising me how you guys organise your saving pots, that would be a great help :)
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