First Time Buyer Question - Debt

M

munsterchap

Guest
Hi Forum,

First post so go easy!! I am a FTB looking to start the process of getting a mortgage. I am (32) married but it looks as though it may be a single applicant mortgage due to my wife being out sick (1 year) as she is receiving treatment for cancer although she has been in employment for 6 years with her employer and they continue to pay her (earns 25k).

I earn circa 85K per yer and have savings of 15k with some more in the credit union. The problem is that I have three outstanding loans all of which I am able to pay and have done without problem for some time without missing payment.

Credit Card 14k
Personal Load 10K
Car Load 9K

I continue to pay the interest on my CC which is killing me but am due a cash windfall this December which will allow me to clear both my credit card and personal loan....

As this will leave me with a lot more each month for savings and disposable cash, should I wait some time to apply or can this be done just after they are cleared. We are currently paying 1300 a month for rent in the same house for over 4 years and are desperate to have our own house.

Looking forward to any comments ...

Thanks
 
Hi Munsterchap,

If I were you I would pay the credit card off with the €15k you have saved, as paying the interest on a cc debt of €14k is crazy when you have savings. Then clear the personal loan and car loan with the December windfall.

Then just keep saving, and with no loans you should build up a good deposit for a house in no time.

Cheers.

Scotsgirl
 
Will the bank allow you make application as a sole applicant

I was told by my broker when I got married that my wife would have to be included in future applications
 
You seriously should take Scotsgirl advice. If the CC rate is 20% p.a. the it's 2.8k you are paying on interest. Your 15k on deposit gets about 2% gross at best which is 0.3k. If you pay it now this time next year you are 2.5k better off.
 
Taking the banks' view on this, your record of money management is not good. And a windfall doesn't change that. As a couple you are earning well over 100k yet you have substantial debts that are seemingly only going to be cleared because of this windfall.

Not working in lending I can't speak definitively, but I think you will need to show a pattern of financial prudence for some months beforehand to ensure a successful application.
 
You seriously should take Scotsgirl advice. If the CC rate is 20% p.a. the it's 2.8k you are paying on interest. Your 15k on deposit gets about 2% gross at best which is 0.3k. If you pay it now this time next year you are 2.5k better off.
He already said he's paying 2 of the 3 debts off when he gets his cash windfall at xmas. His question is how long he should wait from clearing the debts to applying for his mortgage i.e.as soon as they're paid off or until he has some more savings built up.
 
Clear the debts and sort out your finances and then apply 6 to 8 months up the road after clearing the debts... at the moment I can't see you getting any mortgage.

Remember when the bank do a credit check they'll see all the loans paid off etc.

Your wife will be part of the application as the house will be in joint names.
 
Once the debts are clear the bank no longer count them in their affordability calculations. Don't completely wipe out yours saving however as life events happen and the last thing you want to do is end up in more debt. People usually advise to keep 1-2 months net wage as an emergency fund until you've paid off all the debt.

As mentioned above, once you are married it is a joint application.

Once you pay off the debts, can show savings, and have your deposit, you should be fine. They'll look at paying off the debt as savings as well since you lived without the cash.
 
You don't say how much of a windfall you will be getting, but the way I see it if you plan to pay off the credit card and the personal loan - that's €24k, so you must be getting a windfall of that amount, if not more.

If you pay off your credit card bill from your €15k saved, that still leaves you with €1k in savings. That leaves you with personal loan and car loan amounting to €19k, which would still leave you with €5k minimum left over from your windfall.

So after paying off all your debts, you still have €6k+ in savings. Every month add whatever you would have been paying off your loans to this amount. Plus the bank might like to see that you can regularly save money before giving you a mortgage.

Even if you have one debt left when applying for a mortgage the bank will give you a reduced amount based on that loan.
 
You don't say how much of a windfall you will be getting, but the way I see it if you plan to pay off the credit card and the personal loan - that's €24k, so you must be getting a windfall of that amount, if not more.

If you pay off your credit card bill from your €15k saved, that still leaves you with €1k in savings. That leaves you with personal loan and car loan amounting to €19k, which would still leave you with €5k minimum left over from your windfall.

So after paying off all your debts, you still have €6k+ in savings. Every month add whatever you would have been paying off your loans to this amount. Plus the bank might like to see that you can regularly save money before giving you a mortgage.

Even if you have one debt left when applying for a mortgage the bank will give you a reduced amount based on that loan.

Thanks for the advice on this one, this seems like the most logical choice but I just don't like parting with savings. I do indeed have a 25k lump sum which will allow me to clear everything.
 
I know it's nice to have a cushion of savings in the bank but it doesn't make sense to have it with that much debt. When you pay off your debts you will still have a very healthy €7k.

If you can save €1k monthly after clearing your debts, by next June you will have €15k saved again.
 
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