Rebuild credit with cash savings or buy site?

S

soonberentin

Guest
Looking for some advice regarding restructuring finances

Current am self employed through own limited company.

Company currently owes 120k to tax man built up over several years which is due promptly, and repayment plan is not doable. Lenders won’t touch us with tax bill.

House is worth 460k owing 220k on mortgage

1 car loan for 19k

1 visa card of 5k

No other debts

Plan of attack is to sell house, its in a part of Dublin selling well at the moment judging by other houses near by.

So 460k – 120k – 220k – 19k – 5k = 96k

Allow further 10k for solicitors and move and etc say 75k left


Now the fun begins

We want to rent in West of Ireland for approx 12-18 months while saving like mad with a view to building our own house on a site in the west.

With cheaper rent, loan and visa gone we can save approx 750 per month as is.

The fact that we have loaned the company 120k (to pay tax) means we can draw a significant amount out of company without impacting our PAYE or prsi as loan repayments to us.


However we wish to restore our credit rating which is in a shambles due to tax bill showing on accounts and 1 other loan which was cleared 3 months ago but was in a default state and shows on credit report.


If we can show in 12-18 months time that we are free and clear on tax, and can produce a TAX certificate, can show that we have been saving 750 per month, and paying all bills on time etc, have no debts to anyone, will our chances of getting a mortgage be good or bad.

Alternatively we could leave the car loan alone, it has never had a missed payment, and add the 19k to the cash in the bank.

We have a choice of drawing more money out of the company as it repays us the loan or should we leave it in the company, showing the company month on month increasing its capital reserve, but our wages are less?

If we draw extra we can save 1600 per month so that in 18 months time we have 29k saved, plus the original 75K gives us 104k in the bank and shows a significant disposable income.

With the 75k we were thinking of buying a site. Would this assist in obtaining a mortgage if we decide to build or would the banks prefer we leave the money in a bank account until we apply for mortgage and combine house build and site in one larger mortgage but have a significant deposit.

Is 12 -18 month too short a period for the banks to accept?

Re site prices we are looking at 50-70k range and a house build of roughly 160k.

Basically looking for the best way to handle the finances to show in 12 -18 months that we are solvent, have a good amount of disposable income available, and have cash or land available towards cost of mortgage.


SBR
 
soonberentin said:
Alternatively we could leave the car loan alone, it has never had a missed payment, and add the 19k to the cash in the bank.
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Maintaining savings while borrowing, especially at unsecured loan rates, generally does not make sense. Better to reduce/clear debts first in general.

I'm a bit confused about the "credit rating" issue. Can you clarify if/how the company's financial affairs, tax liabilities etc. impact on your personal financial affairs, credit history etc.? Obviously they impact on you in terms of liquidating assets to lend money to the company to meet its liabilities but I'm not clear if/how these issues affect your credit rating/ICB records etc.
 
soonberentin said:
If we can show in 12-18 months time that we are free and clear on tax, and can produce a TAX certificate, can show that we have been saving 750 per month, and paying all bills on time etc, have no debts to anyone, will our chances of getting a mortgage be good or bad.

With the 75k we were thinking of buying a site. Would this assist in obtaining a mortgage if we decide to build or would the banks prefer we leave the money in a bank account until we apply for mortgage and combine house build and site in one larger mortgage but have a significant deposit.

Is 12 -18 month too short a period for the banks to accept?
Click to expand...

I can really sympathise with your predicament as a family member recently hit similar problems (well they'd been growing for years) though luckily they'd got the debt down to 12k and the credit union and MABS were able to help out so they didn't have to sell their house. I'm assuming that this is a family business or a sole trader, as otherwise it wouldn't have spattered your credit record.

If you have a sizeable desposit then its likely that you will be able to get a mortgage but may end up pushed to one of the subprime alternatives. At the same time if you have enough cash to buy land and let it sit for a few more years, it could be worth your while sitting on the land until the construction industry quietens down a bit and you can get the house built more cheaply.

Trouble is that at the moment it does look as if its getting much harder to get a mortgage if you haven't 100% squeaky clean credit. Best thing to do is seek independent expert advice here.
 
Our only income is from the company hence every lender requires audited accounts. These show a significant TAX liability. Thus our credit rating or more properly the amount that a lender will lend is seriously impacted.

Separately a loan was in a default state but has been recently cleared and shows as such in a credit check.

But it is still on the credit check and will be for some time :(

The nub of the question is……

Draw as much money out of the company as possible, showing the company as breaking even while our disposable income is high and we have a track record of saving a sizable amount each month

Draw as little as possible out of the company, our disposable income is low but company is hugely profitable.

Separately do lenders have a preference for cash in the bank savings or would buying a site and letting it mature be treated as viable assets when applying for a mortgage to build on that site.

What exactly do you have to do to show to lenders that you are now leading a model financial lifestyle with a view to using a prime lender, and how long before sins of the past are forgiven?

SBR
 
It takes 5 years to clean your record from date of last miss.

If you can buy site and put in raft then the value of site+raft+planning could be as much or even more than 50% of the value of the property depending on where it is. Not in the wilds of Roscommon but a €75 site near westport or galway city with planning and raft foundation gives you leverage after a valuer sees it.

The lender would be more chilled about a 50% mortgage than a 90% mortgage when you do approach them but be prepared to show resourcefulness and a year or two of utter probity in your finances before you approach them.
 
firstly, dont think you will get a site for €75k. second there are rules regarding "outsiders" getting permission to build. some say there is a 5 yrs rule, others say it is 10 years that you have to be living in the area, even then not so sure you will get it. heard on gerry ryan show today, man 25yrs old, living at home father gave him a site on their land, he's been refused permission to build. something to do with having to "show a need for housing" his forefathers worked to buy the land back through the years, worked on the land and now cant do what they want with it.i live in a village which was a previous tidy towns winner. planning refused for dormer bungalows on a piece of land, builder gave up. council bought the land built 3 storey buildings look like an inner city block of flats, also built lookalike cowhouses in front of them. wheres the logic in that? as jim in the royle family would say"logic .......my This post will be deleted if not edited to remove bad language". good luck with your finances etc.
 
this is more of a practical response as opposed to a financial solution....check out the galway advertiser.com on a wednesday for places to rent in galway. look to rent a dbl room from 250+ or a 1bed aprt from 600+, both in and around city. this might give you an idea when budgeting.
 
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