Saving for house with outstanding debt

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rgar

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I plan to buy a house within the next few months and have already started saving for the same.

I have an outstanding loan and credit card, would be a good idea to top up the credit union loan and clear off the credit card just so i have one payment to concentrate on or would this look bad when my credit etc is looked at by a mortgage lender in a couple of months?

I will be a first time buyer.
 
Outstanding loans reduce the amount you can borrow, but it isn't as simple as Amount your car borrow - amount of debt. They take the monthly commitments and reduce it from your disposable income which has a much large effect.

At a minimum get rid of the credit debt. Interest rates on credit cards is insane to the point where you should be throwing every spare cent at it to clear.
 
I plan to have the loan and credit card cleared before I start approching mortgage lenders.
 
If you can't clear your loan and credit-card immediately, it is unlikely you will be buying within the next few months - lenders want to see a history (months/years) of saving.
 
rgar said:
I plan to have the loan and credit card cleared before I start approching mortgage lenders.
Click to expand...

Firstly I don't see that logic of what you are trying to do. Surely it would make sense to clear all loans and credit card debt before even thinking of buying a house.

Also you seem to hint that it will take time to clear these debts. From the scarce facts on financials you've posted do you think someone who is not seemingly able to manage credit (credit card bill) should be thinking of major debt?

Maybe there's a very good reason you've credit card debt that will take time to repay? More infor and you'll get better advice.
 
Heres more info:
I have savings of approx €7500 saved over the past 6 - 8 months and putting away €800 per month still.
Owe approx €9000 between credit union and credit card, paying off €600 per month combined.
Parents will give me €15-20,000 as a gift of which i will use some to clear the remaining owed prior to mortgage application.
 
You are probably paying 15% on the credit card and the effective rate on the credit union debt could be anything up to 20% depending on what you have in shares.

Pay off your debts immediately. You will be debt-free in one month or so. Then you will be saving €1,500 per month and will be able to go to the lender in 6 months or so with no debts and a good savings record.

Brendan
 
rgar said:
I have savings of approx €7500 saved over the past 6 - 8 months and putting away €800 per month still.
Owe approx €9000 between credit union and credit card, paying off €600 per month combined.
Parents will give me €15-20,000 as a gift of which i will use some to clear the remaining owed prior to mortgage application.
Click to expand...

I don't think your parents should give you money until you've been debt free for at least a year.

Just out of curiosity why did you decide not to pay down high interest debt but decided instead to 'save' this money? What is your logic? This is to get a feel for your thinking.

Also why did you run up such large debts if you have a good income.

At least some of the credit union repayments is presumably also savings? Do you have savings in the credit union or is that the 7500?
 
IMO it's crazy to save when you are paying very high interest rates on other loans ie Credit Cards and CU loans. Yes, you may get the feel good factor from being able to put some money away but in reality you are losing more money by not diverting your savings into the high interest loans.

Pay off the loans with your savings right away and then start Jan. with a clean slate. By June you will have a pot of €9,000 in real savings, plus your parents money, plus a (short) savings history and will therefore be attractive to banks as a potential mortgage customer.
If you don't, come next June, you will have a smaller savings pot and a credit history that shows recent debt. You will not be such an attractive applicant.
Good luck with it and well done on getting to grips with your finances.
 
If you do follow the advice above, it may be best to pay off the CU first as it will release the shares you have with them. You will have to check the figures and the interest rates.

Brendan
 
Agree to MacStuff and Brendan If you really want to avoid critical debt issues in future then it is essential to clear high interest loans first. If you carry balance in your account then you ends with paying more at the end in form of interest payments. In order to save money, you should also try to avoid purchasing any new credit cards. Using credit card continuously may increase debt burden so it is important to clear your debs first.
 
Sorry to be negative but I don't think you will get mortgage approval. Unless you are going for a very small mortgage. You are going to need to demonstrate a history of regularly saving and very little in the way of current debt.
Right now you have more debt than savings. Even if you pay this off the potential lender will see this and it is not favourable.

Good luck- keep saving and get rid of that debt!!
 
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