Mortgage Background Checks?

Zascar

I'm in the process of buying an apartment. I've got everything done but I'm just waiting for the bank to send the Loan Pack to my solicitor, and for me to sign to close the deal. I am buying it as an investment as I am going traveling for a year, and while I am going I am renting it out. I am due to hand in my notice any day now in work forthe end of Feb, but I have been told that sometimes the bank will phone your employer 24 hours before issuing the check to make sure you are still in your job. If they do any my HR department say that I've handed in my notice they won't give me the mortgage! Does anyone know the likelyhood of this happening as I have to hand i my notice but do not want to then get declined and have wasted all this time and effort, and not have my investment at the end of it...

thanks

spongebob

wait till your solicitor HAS THE MONEY before you hand in your notice then.

M

RainyDay

I presume you have taken the impacts on stamp duty, capital gains tax, mortgage interest relief into account in making your decision to rent it out.

How long do you reckon it will take you to furnish the apartment and get the first tenants in? Have you got a few months mortgage repayments in your back pocket to cover this initial period and any vacant periods during the first year or two?

Zascar

my solicitor is due to haev the contacts for me to sign on monday/tuesday. The place is alraedy furnished and I can cover any time that it remain empty, but the woman who sold me the house will also be renting it, and she said there will be no probllem findng a tennant quickly. As I'm a first time buyer no stap duty applies at this price.

spongebob

having contracts and having the cash is different. the solicitor will send off for the cash shortly, the banks can dick around for days . make sure the COMPLETION date is before you hand your notice in.

M

RainyDay

Originally posted by Zascar
As I'm a first time buyer no stap duty applies at this price.

Not true - That's what I was getting at. The exemption for first-time-buyers is limited to owner-occupied property. From Page 3 of Revenue guide to Stamp Duty

A First Time Buyer is a person, (or, where there is more than one purchaser,
each of such persons):
• who has not on any previous occasion, either individually or jointly,
purchased or built on his/her own behalf a house (in Ireland or
abroad) and
• where the property purchased is occupied by the buyer, or a person
on his behalf, as his/her only or principal place of residence and

Zascar

Yes you are correct, but my solicitor told me that it's not quite that strict. What thye really mean is that you can't avoid Stamp Duty if you might plan to but another place later and use it for your primary residence. If you do they can demand you pay the stamp duty of the first place too! I can get around this though, as the cut off for stamp duty is €127,000. The place I am buying is €130,000, so we are going to change it to €127,000 and then add €3,000 for the contents as it is fully furnished. It shouldn't be a problem.

What I am more worried about is if the banks (I'm going with First active) Always check with your empolyer before issueing the funds, or if it is done randomly, and if so how much? I know in the past it was very rare, but now they are under pressure to tighen up on the regulations. (anyone here work in Mortgages, can you give me a estimate of how much they do this?)

My manager etc know I am leaving, but I have not officially "Handed in my Notice" so HR are not yet aware... I think I can stretch it for a while cause I told them exactly waht i'm doing, so they understand. I'm just trying to way up the risks...

RainyDay

Originally posted by Zascar
Yes you are correct, but my solicitor told me that it's not quite that strict. What thye really mean is that you can't avoid Stamp Duty if you might plan to but another place later and use it for your primary residence. If you do they can demand you pay the stamp duty of the first place too! I can get around this though, as the cut off for stamp duty is €127,000. The place I am buying is €130,000, so we are going to change it to €127,000 and then add €3,000 for the contents as it is fully furnished. It shouldn't be a problem.

IMHO, your solicitor is doing you a disservice. Remember it wont be your solicitor facing Revenue bills (possibly including interest & penalties) a few years down the line - it will be you. If your solicitor is saying that you will 'get away with this' as long as Revenue don't find out about it, what do you think will happen as soon as your tenant claims his Renters tax relief allowance at your address (effectively flagging up to Revenue that 'this property is rented'?

But their is an ethical issue here too - No offence intended, but it appears as if your approach is based on 'will I be caught'? Evading taxes is a crime and deprives the State of income. Just pay your damn taxes, will ya?

Victor

I think you are mad - the checks are there to protect you aswell as the bank, effectively you are all but lying to the bank.

Zascar

Mad? I see your point but my thinking is this: Currently I have been in a good stable job for the last year and a half, which has enabled me to get approved for a mortgage. I have been wanting to go traveling for some time, I have made the decision to go asap, and I now have the opportunity to buy an apartment as an investment before I leave. When I come back it might be a further year before I can get a mortgage again. This way, I do it now, and it will be working for me when I am off traveling, and when I come back I will have a large asset which will have appreciated. The rent more than pays for the mortgage, and I have my parents to look after it for me when I'm away. I'm pretty young, and to be able to own a property at this age and have it making me money while I am away, is in my opinion a pretty good idea...

If someone buys a place and then 6 months later decides to rent it out and leave the county, there would be nothing wrong with that. Its just the fact that my timing is difficult. I had set a date to leave a long time ago, and only after that did the oppotunity come to be. This is an investment property and as long as the mortgage repayments are being made there is no problem. I have done my research - I will have no problem renting it, I'm making a little money on it every month, and the place is a safe bet for a pretty good rate of appreciateion while I am gone.

I actaually never imagined buying a property would be so straight forward. I would strongly encourage anyone that has the opportunity to do something like this to give it some real consideration. Any good business man knows that the best way to invest is with other peoples money - usually the bank's - and property is one of the safest ways to invest. If anyone here has read books like these - All Highly Recommended -you will know exactly what I am talking about.

Thanks for the advice guys, I'll let you know how it goes...

RainyDay

Oh dear, zascar - Now you've really got me worried. You didn't really believe all that Rich Dad, Poor Dad nonsense, did you? These books/authors have about as much do with property investment as I have to do with world-class tiddlywinks championships. They are really all about network marketing and/or multi-level marketing of their books/seminars/products/services. See this Askaboutmoney thread which includes a great Sunday Tribune article exposing Whitney's seminars as basically a scam or John Reed's demolitions of Kiyosaki and Whitney for more indepth analysis. Interestingly enough, on his visit to Ireland in 2003, the great Kiyosaki stated that even he wouldn't invest in residential property in Ireland at the moment, as the prices were just way too high.

Many investors piled into residential property investment in 2002/2003 convinced (like you) that they were onto a sure thing, that the tenants would pay the mortgage for them. But somehow, life is just never quite that easy. See here, here and here for some anecdotal evidence of how hard it can be to get & hold decent tenants. If you go blundering into this business with the expectation that you can't lose, you are likely to get a nasty come down. Smart investors plan for 1-2 months vacancy each year, and ensure that they have funds available for maintaining the property and paying their tax bill at the end of the year. If you haven't built this into your calculations, you are likely to get a nasty surprise in a couple of years time.

Your comment that the best way to invest is using other peoples money is very worrying. Borrowing to invest significantly increases the risk of any investment. You take all the risk - the bank secure their money with the mortgage, but you have no security for your investment. The banks are laughing all the way home - you pay the interest, you manage the property and you take all the risk.

It also sounds like you are building a 'house of cards' ready to collapse once the truth comes out. Have you told the lender that you are purchasing for investment (rather than to live)? If not, what do you think will happen when your tenant claims their renters tax allowance and Revenue notify your lender that they have cancelled your tax relief at source? Will you notify the insurance company that the property is rented? If yes, they are likely to note this on the confirmation note which your lender will require, so your lender will actually find out that you have been lying. If no, then you will effectively have a 130k investment which is not insured - and believe me, insurance companies are really smart at finding ways to wiggle out of paying out big claims, should a disaster happen. You are also missing out on the more generous tax relief available to investors. As this is uncapped (unlike the tax relief for purchasers), it is way more generous than mortgage tax relief for residential purchasers.

And if you are convinced that Revenue won't bother or won't be smart enough to come after you, well, maybe you are right for the moment. But are you sure that they won't be smart enough to come after you in 2 years time or 5 years time or 10 years time, when a really nice chunk of interest & penalties has built up. There were plenty of 'cute hoors' in the 80's absolutely convinced that Revenue would never find out about their offshore accounts and bogus non-resident accounts who are now facing huge tax bills (including interest & penalties) and publication of their details in the Revenue name-and-shame lists.

See Askaboutmoney.com guide to Residential Property investment to get a decent understanding of what you are getting yourself into.

Zascar

Thanks RainyDay. You make some very good points, and it’s nice to have some honest advice which I do appreciate. Maybe I structured my words wrong, but I'm not saying that this is a 'No Risk Situation' - every investment is risky but does seem like a good investment opportunity, and if done correctly should be worthwhile. The apartment is in a block where many of them are being rented. It’s in an excellent location, and the agent we are buying off has rented many of them for other people like me with no problems. We (myself and my parents) have been well advised and we are very aware how important it is to get the right tenants - although I suppose you can never be completely safe. If the situation does arise where it lies vacant or they do a runner I do have backup funds to cover the mortgage. I have selected the location very carefully and got advice from a lot of good people. When I had the house valued for the mortgage it was valued at €10,000 more than I paid for it, and they said the rent I should be asking for was €100pm more than I was planning to ask for.

I certainly don't plan to build a house of cards, so I'll take your advice and get everything done straight down the line before the deal is closed. If I so purchase the house for €130k, and the furniture for €3k, then I am not dong anything illegal am I?

I still recommend the Rich Dad books, not because what he says is bible truth, but because after reading books like these makes you sit up and think that if you put your mind to it, get good advice, make good investments, you can make your way to financial security. I know plenty of people in their 30’s, 40’s and up, who have just a job normal job, not much savings, and little or no assets - I do not wan to be like this. The person who recommended these books to me said that if he has read books like these 20 years ago he would probably be a wealthy man by now. I’m 23 and I have the opportunity to get on the property ladder now, and make a good start at securing my financial future…

RainyDay

Hi Zascar

Originally posted by Zascar
the agent we are buying off has rented many of them for other people like me with no problems. We (myself and my parents) have been well advised

My last 'downer' (I promise) - Don't rely on an estate agent who has a vested interest in closing a sale (i.e. his commission) for independent advice. They will certainly tell you what you want to hear.

Originally posted by Zascar
If I so purchase the house for €130k, and the furniture for €3k, then I am not dong anything illegal am I?

If there is 3k worth of furniture in the house, then you are in the clear. If there is not 3k worth of furniture, then you are on dodgy ground. AFAIK, there can be no mention of the 3k/furniture deal as part of the overall contract. This does put you in a weak contractual position, i.e. if you arrive in the apartment and find that the 1k suite has been replaced with a 150 quid pile of junk, you have no contractual comeback against the vendor. Also, I did hear that Revenue pay special attention to those transactions which come very close to the stamp duty thresholds.

Hope it works out for you and enjoy your trip.

DaithiSurfer

What are you going to do when revenues inspector comes to visit you.
This usually happens about 1-3 months after you close the deal.
It used to be an inspection for the first time buyers grant but now its to make sure you arent messing with the ftb no stamp duty deal.

If YOU are not there on the day this guy arranges you're screwed.

spongebob

When did this start Daithí, I never heard of the Revenue carrying out spot checks like this....eve though I see the logic behind it .

The Revenue will make 5-10k in stamp duty for every 'non owner occupied' property they unearth.

M

DaithiSurfer

Its not a spot check.
They've always done it for the ftb grant.
I thought it would be stopped when the grant was dropped but all of the ftb's i know who have bought since the ftb grant was dropped have told me that they've still got 'THE VISIT'

Zascar

So what happens if your 'flatmates' say you are 'not in' or 'on holiday'?

DaithiSurfer

It doesnt work like that.
You HAVE TO BE IN.
If you're not you lose your (used to be ftb grant) and your stamp duty exemption
They will send you a letter giving (i think its 3 weeks) notice of the date.
If you wont be in you have to call him to say why and arrange anopther day 2 weeks later or whatever.
The inspector then calls out and checks you out. When they came to visit me fot my ftb grant he had a good nose around the house too to 'check it for compliance with safety regs'. He even sent me a letter a few weeks later telling me to take the key locks of the bedroom windows.
Thats how it worked with ftb grant anyway. Not sure at all now, but i imagine much the same.
They are just checking you out to see if they can claw back money from you that you have conned them out of i suppose.

spongebob

Originally posted by DaithiSurfer
Its not a spot check.
They've always done it for the ftb grant.
I thought it would be stopped when the grant was dropped but all of the ftb's i know who have bought since the ftb grant was dropped have told me that they've still got 'THE VISIT'

Jayzus Daithi , FTB inspectors work for the Department of the ENVIRONMENT not the Revenue.

M

DaithiSurfer

I havent heard of anyone not being in for thr visit.
Would be fun to heasr what happens though.

Borzoi

Originally posted by DaithiSurfer

The inspector then calls out and checks you out. When they came to visit me fot my ftb grant he had a good nose around the house too to 'check it for compliance with safety regs'. He even sent me a letter a few weeks later telling me to take the key locks of the bedroom windows.

My FTB visit was alot shorter, the guy never made it past the hall. Asked whether there was a smoke alarm. That was it, cheque was a few days later. However it probably had a lot to do with the world cup match that was on later that afternoon:D

The real problem is that you are likely to miss the letter informing you of the visit as well as the visit itself. (amongst the other slightly dodgy details)

On a further note of caution the apartment below me where I live has been rented for less than half of the time that I've been around - a series of short tenancies, don't know why, but it happens

nlgbbbblth

I sincerely doubt if Bank will phone your employer to check on your job status

DaithiSurfer

They do indeed call your employer to chack if you are still working there.
I think that you cant be on any probation period in your job either.

RainyDay

Originally posted by Muck
Tell your tenants that the TV licence inspector will call to all new houses after 1-3 months Zascar......and that they will do the person who answers the door not the Landlord. That should encourage them to keep the doors shut.

Contents should be dealt with direct with the seller. They provide an itemised list ...down to mirrors and stuff and you then pay them for it personally in cash. Your solicitor is on shaky ground here and you could get them into trouble with your assertations . A solicitor may legally not collude in ANY WAY in diddling the Revenue. Thats your job

Hi Muck - Your post is condoning and encouraging illegal tax evasion and contravenes the charter for this forum. Please remove it.

It really is unacceptable to treat tax evasion as 'cute hoorism' and a victimless crime. It deprives the state of income, and puts the evader on the same team as Lawlor/Haughey/Redmond et al.

Regards - RainyDay

spongebob

Originally posted by Zascar
I have been wanting to go traveling for some time, I have made the decision to go asap, and I now have the opportunity to buy an apartment as an investment before I leave.

Fair enough point Rainy Day. Let me explain my view of it.

1. Zascar will not be tax resident in the state for most of the year. That sorts the Income Tax strand IMO. He is simply not liable.

2. The stamp duty issue is more complex. When I bought first I bought at IEP56k . I got 100% tax relief on stamp duty as it was new, the government then gave me IEP3k in my FTB grant ..... the higher marginal rate was 48% then and I paid full PRSI so I would have had to earn about IEP6500 to earn that ......€8k ish. Why are new properties not stamped, it subsidises land bank owners and discourages refits of existing (serviced) properties to a great extent.

Zascar can only hop on the property ladder starting at over DOUBLE what I paid . Zascar gets no FTB. Compared to me he is being crapped on. I got 5.35% of my house free from the government . As an entry level property where I live would cost €250k nowadays I would have to get over 13K from the government in cash or earn another 20k in salary this year (at 40% marginal tax rate ) to get the same deal from the government. Nor was that grant indexed for years and NOR has the stamp duty threshold for first time buyers been lifted above the €180k or so it has been stuck on for years so all FTB peeps who go for second hand in a large city pay stamp duty now.

While there is a risk of being caught, and I cautioned about that, he has my best wishes for his first home. He is hardly in the league of Lawlor and Burke and I'm sure he will be back soon enough in PAYE land where he will pay more than his share......he struck me (not) as the self employed type who may already be dodging his share of tax. They can pay me for my advice ( Casheesh of course ) .

On that balance of all that I gave my advice. The mods will have to bin this as well if they think I am wrong.

Until then it stands.

M

RainyDay

Ah now I see your point. Basically, you are saying that it is OK to evade tax if for whatever reason you don't like some of the tax laws, or government housing policy, or maybe even the weather - once there is a flimsy little excuse, then all bets are off and it is every man for himself.

Following the same logic, given that I have a herion habit to feed and I don't approve of govt policy on drug treatment centres, I'm choosing to ignore the larceny laws, break into your house, rob your DVD player, break into your car and rob your stereo. But once I have a good justification for my actions, that's all fine and dandy and no-one would object, right?

Wrong - tax laws have no relation to Govt policy or house prices. If you don't like Govt policy or house prices, then you are entitled to act democratically to change these. You are not entitled to practice tax evasion.

Why do you think Lawlor & Burke fiddled their tax? Because they saw many, many 'little people' with their little tax fiddles like you have recommended here. It is completely hypocritical to criticise their corrupt actions while you recommend small-scale tax evasion here.

And BTW, tax residency is a much more complex issue, than your point above. I'm pretty sure that income tax would be due in this circumstance.

b20uvkft6m5xwg

Can I remind people of the charter for this board.
http://www.boards.ie/vbulletin/showthread.php?s=&threadid=43516

What is not kudos...
The promotion of any illegal activity will not be tollerated-
items such as Tax Evasion, Insurance Fraud, Intellectual property infringement, banking fraud, the dispertion of "insider information", Pyramid or "Get Rich" Quick Schemes and any other illegal acts that may be deemed so.

Please observe these rules or expect censure.

David.

DaithiSurfer

RainyDay.
You've taken the first step.
Now is the time to bite the bullet and check yourself in where you can get some help.
Good luck on behalf of all of us.

spongebob

Originally posted by RainyDay
Following the same logic, given that I have a herion habit to feed and I don't approve of govt policy on drug treatment centres, I'm choosing to ignore the larceny laws, break into your house, rob your DVD player, break into your car and rob your stereo. But once I have a good justification for my actions, that's all fine and dandy and no-one would object, right?

Thats a gross dramatisation Rainyday, I'll simply buy a horse and watch it shag another horse and then McCreevey will let me keep the lot tax free, thats all us country folks have do to . Heroin is such an urban analogy ... I can't follow it I because I don't understand it.

M

RainyDay

Originally posted by Muck
Thats a gross dramatisation Rainyday, I'll simply buy a horse and watch it shag another horse and then McCreevey will let me keep the lot tax free

Yep, it was a fairly gross dramatisation, but it demonstrates an important ethical issue. I think the tax breaks for stud farms area disgrace, but I recognise that they have been implemented/maintained by democratically elected Govts, so I don't use it as an excuse to justify my own law-breaking. It's just strange how most Irish people disagree with any tax evasion above and beyond their own little bending of the laws.