Query re savings and trading up

Discussion in 'Mortgages and buying and selling homes' started by Advicepls, 11 Jul 2018.

  1. Advicepls

    Advicepls Frequent Poster

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    Myself and my husband are looking to trade up. We have circa 200k equity in our current house which will cover 20% deposit for new house (with some left over). We have consistently been saving but used a chunk of money to pay off a car loan and remedial work needed to the house. Over the past 4 months we have 11k saved (saving a min of 2.5k per month) on top of paying our current mortgage etc. Is there a certain amount we should have saved / or a certain amount of time we should be saving for without having dipped into it, before we apply for approval?
     
  2. LDFerguson

    LDFerguson Frequent Poster

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    Although each lender has its own criteria, as a very general rule, banks are looking for you to prove your ability to pay the monthly repayment on your proposed mortgage for 6 - 12 months. They will usually "stress-test" the repayment by adding around 2% to the actual interest rate. If the stress-tested monthly repayment on your new mortgage is less than (€2,500 + current mortgage) then I'd say you'll be okay. If you're not in a hurry, leave it for another two months. If you are, then you can use your previous car loan repayments and previous regular savings amount as part of your application.

    There's no minimum required monetary amount for savings. If the €200,000 equiy plus your cash savings are sufficient for your deposit, Stamp Duty and fees, then that's fine.
     
  3. Advicepls

    Advicepls Frequent Poster

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    Ah super thank you. We live in an area where very few of the house type we like come on the market. So we just wanted to get approval on the chance one comes on. I am thinking it will take a while to get the right house. The new mortgage is likely to be no more than 1k dearer than our current mortgage so we have proven we can afford it.
     
  4. dishwasher

    dishwasher Frequent Poster

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    We traded up last year.

    Challenges were:

    Mortgage approval was conditional on sale of existing house, Even though they were prepared to lend us more that we needed on strength of income. Keeping 2 houses temporarily was a non starter.

    Estate agents (Dublin) weren’t willing to accept a bid from us until we were sale agreed on our own house. And one particular agent said he wanted evidence that we’d signed contracts before he’d accept a bid.

    Once we were sale agreed, buyers pressured us for a closing date and we had to pretend we were close to agreeing a house to buy when we weren’t to keep them happy and agree to the longest date we could get away with.


    First house we were sale agreed on was a divorcing couple and we had to pull out as it became clear that one of the party didn’t actually want to sel the house at all.

    State of the rental market in Dublin meant it was very difficult/close to impossible to rent a family home within reasonable distance of school without commiting to a year’s lease and without rental references. (Had been home owners for 10 years)

    Dispite significant equity in our existing house (roughly 40% of price of house we were buying) we didn’t have 10% of the price of the new house in cash for the deposit required on the date contracts were signed (4 weeks before closing date). We had about 5%. No bank would lend us this as they called it bridging finance. Had to borrow from family and negotiate with sellers to pay lower than 10%.


    Last minute hitch with paperwork on date of closing meant we were homeless for 2 days and had to put our stuff in storage and stay in a hotel. This wasn’t that much of a problem as loads of storage places on the M50 who rent for a few days for a couple of hundred euros.

    Despite all this, we manage to sell and buy within 2 days but it is not for the faint hearted.
     
  5. rosie

    rosie Registered User

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    Thanks dishwasher, that was a very helpful post
     
  6. Advicepls

    Advicepls Frequent Poster

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    Yikes dishwasher that sounds very stressful. Unlikely we will have the full 10% (let alone 20) either and no one to borrow it off, most of the cash is tied up in the house. That never even occurred to me that we would need that much up front!
     
  7. dishwasher

    dishwasher Frequent Poster

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    It was very stressful but it did all work out in the end.

    We were lucky in that the house we were buying was empty so the people selling it weren’t under pressure for a particular date.

    The 10% on contract signing did catch us out. Contract signing was only a matter of weeks before closing and seems unbelievable that the banks won’t help but I think their hands are tied somehow. People kept saying things like “apply for a car loan” but the bank would only issue a loan cheque to a car dealership.

    You could consider doing a remortgage of your current house to free up this cash now when time is on your side and perhaps avail of a switcher cashback offer while you are at it. We didn’t have time to do this.

    The biggest issue by far is the timing the buying and selling if you aren’t prepared to rent.
     
  8. Leo

    Leo Moderator

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    Those people also didn't realise how this would impact your mortgage application!
     
  9. RedOnion

    RedOnion Frequent Poster

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    Brilliant post from @dishwasher on the reality of buying and selling in current market.
    I gave up trying to co-ordinate, and just moved in with family (not without stress though!)
    Of all the people I know that have traded up, the 2 who had least stressful move both managed to sell to cash investors, who were happy to close and charge them rent until they closed their own purchases and moved out.
     
  10. Dave_Curry_IMC

    Dave_Curry_IMC Frequent Poster

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    The funds that you used to clear the car loan will be added back to your savings build-up by the bank when assessing your repayment capacity, which is calculated as a monthly average over the last 6 months. The monthly loan repayments made prior to clearing the loan (going back a maximum of 6 months from the date of your application) will also be included. If there is still a shortfall versus the target (i.e. the stressed repayments for the new mortgage amount that you require), there would be a strong case to add back the funds that you spent on remedial works, as long as the expenditure is clearly evident in your accounts or through receipts. You mentioned that you have been saving for 4 months. Although the affordability calculation is measured over 6 months, the 6-month average of the last 4 months might still be sufficient. Even if there is still a shortfall, the banks can show some discretion here, especially as you are contributing such a substantial deposit.

    Best regards,
    Dave Curry CFP®
    https://www.linkedin.com/in/davecurryirl
     
  11. Advicepls

    Advicepls Frequent Poster

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    Thanks Dave that's really helpful.