Using equity to pay off debt during house sale?

Tilly1809

Hi, 

does anyone know or have experience of being able to use the equity from a house sale to pay off loan/credit card debt, and then use the remaining as a deposit to buy next home? 

We’d still have a 12-15% deposit after using the equity to clear around 30k in loans/credit cards, but I don’t know if a mortgage company would consider that and allow us to do so? 

Our other option was to get the sale of the house and equity, rent short term settle all debts and then buy again with the money left? Does anyone have any experience of this? It would make us debt free and we have immaculate credit history’s plus a combined salary of 90k? 

Thanks x

K_S

@tilly1809 With a 15% deposit, it should be doable. This is quite common and unless there's something else in the background, I'm not sure why you would need to sell, rent and then buy. 

The main consideration is you need a lender who will disregard (for affordability purposes) debt that will be cleared off from equity. You could (depending on the numbers) even leave some of the debt remaining to get a lower LTV and a better rate. It all depends on the specifics.

getmore4less

Nothing stopping you doing that,  you just have a smaller deposit whcih will be higher rates and need to present a case that show the debt paid off if hitting any affordability limits.



Usual caveat you have sorted out why you have this debt when you have decent income £5k+ net a month consolidation often does not end well.


You are effectively changing the debt to secured rather than  paying it off  so are not changing to debt free.


What's the new mortgage looking like with and without the £30k  rates and LTV  at 90% it is going to be expensive borrowing

Tilly1809

We’re looking to buy around 250-275k ideally and can put down 35-40k and still clear debts 

I’ve had horses the last few years and one thing after another racked up quite big vet bills on the CC sadly, plus some frivolous spending and holidays - definitely living above my means! 

Would a broker be able to explain our position better and secure a mortgage than going via banks? I’d even be happy to prove the debt clear after equity release/sale to evidence to the banks if needed? 

Tilly1809

K_S said:

@tilly1809 With a 15% deposit, it should be doable. This is quite common and unless there's something else in the background, I'm not sure why you would need to sell, rent and then buy. 

The main consideration is you need a lender who will disregard (for affordability purposes) debt that will be cleared off from equity. You could (depending on the numbers) even leave some of the debt remaining to get a lower LTV and a better rate. It all depends on the specifics.

Thanks @K_S - interesting I hadn’t considered that - I’ve since sold said horses and that has significantly upped my ‘disposable’ income so I feel I’d easily be able to throw more money at the CC if we kept that debt.

K_S

Tilly1809 said:

We’re looking to buy around 250-275k ideally and can put down 35-40k and still clear debts 

I’ve had horses the last few years and one thing after another racked up quite big vet bills on the CC sadly, plus some frivolous spending and holidays - definitely living above my means! 

Would a broker be able to explain our position better and secure a mortgage than going via banks? I’d even be happy to prove the debt clear after equity release/sale to evidence to the banks if needed? 

@tilly1809 Other than once with a small building society which required that the solicitor directly pay off the debt upon completion, most lenders in this scenario will base their assessment on the numbers and (to a smaller extent) plausibility at underwriting. Tbh, 30k of debt with 90k income isn't huge in most lenders' eyes. But again, it all boils down to the specific affordability numbers.

I would certainly recommend using a broker who can look at the whole scenario, suggest what balance of debt/LTV may be desirable and place the case with an appropriate lender. But then I would say that wouldn't I!

getmore4less

With that income should be able to hammer the debts while sorting out the properties.

is this an upsize or down size?


With ~£40k to put down then at 85% you can go to £267k

With up to £70k  you could go 75% LTV up to £280k  better rates at 75% LTV


Loan to income comfortable even with a bit of debt.


It will be  balancing act of how keen you are to reduce the debt against against rates

that would need an analysis of the current rates and terms on the £30k that you have racked up along with what the SOA will look like once under control  with decent contingency if keeping the horses 

Tilly1809

K_S said:

Tilly1809 said:

We’re looking to buy around 250-275k ideally and can put down 35-40k and still clear debts 

I’ve had horses the last few years and one thing after another racked up quite big vet bills on the CC sadly, plus some frivolous spending and holidays - definitely living above my means! 

Would a broker be able to explain our position better and secure a mortgage than going via banks? I’d even be happy to prove the debt clear after equity release/sale to evidence to the banks if needed? 

@tilly1809 Other than once with a small building society which required that the solicitor directly pay off the debt upon completion, most lenders in this scenario will base their assessment on the numbers and (to a smaller extent) plausibility at underwriting. Tbh, 30k of debt with 90k income isn't huge in most lenders' eyes. But again, it all boils down to the specific affordability numbers.

I would certainly recommend using a broker who can look at the whole scenario, suggest what balance of debt/LTV may be desirable and place the case with an appropriate lender. But then I would say that wouldn't I!

Thank you! I think a broker is the best way forwards by the sounds of it - we also have the option to use some money from our parents if needed - but I’d prefer not too, both sets have been very generous to offer but we want to do this alone as much as possible! 

@getmore4less thank you, ideally I want to clear the short term CC/loan debt and throw money at a mortgage instead - I am sick of paying interest, and shifting it around. We’ve both said after this, no more CC and spending outside of our means, I’d rather have a crap mortgage for 2 years and put any left over in a pot and then remortgage at better rates when we can. I’d just feel ultimately better about it I think, and hubby can manage my spending as clearly even though we have good incomes I am USELESS.