Mortgage Application... Credit Cards

Tegan86

Hey there,

Hope I"m posting in the correct forum!

I'm looking for some mortgage advice. I've already spoken to a broker and banks but still can't figure out what we should do!!

We're first time buyers looking at properties for around €200,000 and have 10% deposit in savings. Between rent and monthly savings we are already demonstrating ability to make the stressed repayments and still have the required amount left over that they look for for two adults to live!

We were recently refused a mortgage dude to credit card debt. No missed payments just the debt itself. We have since cleared some of this debt using savings but are left with €9000 balance.

So here's my query.....

Should we take out a bank loan for €9000 and cancel our cards? This is what the bank has asked us to do and told us to come back to them in 6 months. I've heard that you won't get mortgage approval if you've taken out a loan in the months coming up to a mortgage application. Is that really the case?

Also, how long should we wait before reapplying? We've been advised to wait a few months to prove we can afford the loan repayments but if we go with the loan option, we will have no credit card bills and the loan repayments will actually be less than what we have already been paying in credit card bills for the past couple of years. Ideally we need approval as soon as possible.

Any advice would be much appreciated or I'd love to hear of anyone else's experience. Thanks so much!!

fits

Use the deposit money to clear the cards and save like hell to make it back up again. This will save you at least a thousand in interest.

fits

Oh and cut up the cards obviously.

Tegan86

fits wrote: »

Use the deposit money to clear the cards and save like hell to make it back up again. This will save you at least a thousand in interest.

Hi Fits,

Thanks for the reply. We're looking to buy as soon as possible so while that's a great suggestion, it would take us quite a while to build back up the full deposit again.

Raised Eyebrow

Taking out a €9K bank loan will be the same as having a €9K credit card loan as far as mortgage approval is concerned. The reality is you don't have a €20K deposit - you only have €11K. As Fits said using your deposit to clear the credit card debt is your only option

Tegan86

Raised Eyebrow wrote: »

Taking out a €9K bank loan will be the same as having a €9K credit card loan as far as mortgage approval is concerned. The reality is you don't have a €20K deposit - you only have €11K. As Fits said using your deposit to clear the credit card debt is your only option

Thanks for the reply. We were advised by a broker that banks look more favorably on personal loans rather than credit card debt. I see exactly what you're saying though but in our case the debt is not impacting on the amount we can borrow - with our combined salaries and adding the debt into the equation we still qualify for about €80,000 more than we're looking to borrow.

Do banks expect people applying for mortgages to have absolutely no other debts? I know regulations are tighter now but if that's the case how to people with car loans/ personal loans get mortgages? We can comfortably afford the mortgage repayments while continuing to pay off our credit cards or a loan if we went with that option. I would love to know if anyone has recently been approved for a mortgage with existing loans/debt.

phormium

It just looks bad to have run up 9k of credit card debt, the most expensive debt there is short of a money lender.

Even taking out a loan to clear it only reduces the interest rate. If I was Mr. Bank I would be more interested in how you have that level of cc debt, it's a lot for people who are able to save and if there is a good explanation I would still like it cleared before loan offer.

As another poster said realistically you don't have the level of savings you think, the best option is clear the credit card debt from your savings. CC debt is not the same as car loans etc as it is revolving debt, even if you cleared it in the morning and showed the bank the statement proving this, there is nothing to stop you racking it up again in the following weeks again which is probably where the advice to take out a loan and clear it is coming from.

Either way though it doesn't look good, if there is a good explanation as to how it got so large then I think your only option is either throw everything you have spare at it until it's gone and apply again (you still pay high interest this way though) or just clear it from savings and save again.

fits

Having a 9k debt is a clear indication of bad money management and by the time you have it paid off it will add up to more. You have to wait six months anyway. If you both try your hardest to save you might have the 9k saved back in 9 months?

Tegan86

phormium wrote: »

It just looks bad to have run up 9k of credit card debt, the most expensive debt there is short of a money lender.

Even taking out a loan to clear it only reduces the interest rate. If I was Mr. Bank I would be more interested in how you have that level of cc debt, it's a lot for people who are able to save and if there is a good explanation I would still like it cleared before loan offer.

As another poster said realistically you don't have the level of savings you think, the best option is clear the credit card debt from your savings. CC debt is not the same as car loans etc as it is revolving debt, even if you cleared it in the morning and showed the bank the statement proving this, there is nothing to stop you racking it up again in the following weeks again which is probably where the advice to take out a loan and clear it is coming from.

Either way though it doesn't look good, if there is a good explanation as to how it got so large then I think your only option is either throw everything you have spare at it until it's gone and apply again (you still pay high interest this way though) or just clear it from savings and save again.

Thanks so much for the detailed reply. The general consensus here seems to be to get rid of the debt and save again so. Not quite what I was hoping hear, but makes total sense.

Jentle Grenade

My partner and I were in a similar situation. We had a deposit of €32k (savings plus inheritance) but we had combined CC debt of €8k. The bank flat out told us that we didn't have €32k of savings. We paid off the Credit Cards using the savings and are going to apply again in November (6 months from debt cleared).

We were annoyed initially but it makes more sense in the long term. She also has a graduate loan (of insane proportions) and I have a car loan but these didn't bother the bank, just the CC debt.

Marcusm

Tegan86 wrote: »

Thanks for the reply. We were advised by a broker that banks look more favorably on personal loans rather than credit card debt. I see exactly what you're saying though but in our case the debt is not impacting on the amount we can borrow - with our combined salaries and adding the debt into the equation we still qualify for about €80,000 more than we're looking to borrow.

Do banks expect people applying for mortgages to have absolutely no other debts? I know regulations are tighter now but if that's the case how to people with car loans/ personal loans get mortgages? We can comfortably afford the mortgage repayments while continuing to pay off our credit cards or a loan if we went with that option. I would love to know if anyone has recently been approved for a mortgage with existing loans/debt.

There is no rational reason to have 9k in credit card debt and 20k in available savings; it should be an immediate red flag to any software that you cannot efficiently manage your finances. Irrespective of what the "adviser" says, short term repayable debt which is not repaid is a red flag issue. With some systems, regard would be had also to undrawn credit card balances.

Tegan86

Jentle Grenade wrote: »

My partner and I were in a similar situation. We had a deposit of €32k (savings plus inheritance) but we had combined CC debt of €8k. The bank flat out told us that we didn't have €32k of savings. We paid off the Credit Cards using the savings and are going to apply again in November (6 months from debt cleared).

We were annoyed initially but it makes more sense in the long term. She also has a graduate loan (of insane proportions) and I have a car loan but these didn't bother the bank, just the CC debt.

Thank you so much for your reply, it's great to hear from someone in a similar situation. That definitely confirms it for me - it time for us to start saving again so! Best of luck with your application in November

Tegan86

Marcusm wrote: »

There is no rational reason to have 9k in credit card debt and 20k in available savings; it should be an immediate red flag to any software that you cannot efficiently manage your finances. Irrespective of what the "adviser" says, short term repayable debt which is not repaid is a red flag issue. With some systems, regard would be had also to undrawn credit card balances.

That makes absolute sense, I guess we were focusing on the wrong thing. We threw everything we had into saving the deposit, we continued to make payments in excess of the minimum payment on our credit cards and planned to clear them once we no longer needed to save like crazy to gather a deposit.

Marcusm

Jentle Grenade wrote: »

My partner and I were in a similar situation. We had a deposit of €32k (savings plus inheritance) but we had combined CC debt of €8k. The bank flat out told us that we didn't have €32k of savings. We paid off the Credit Cards using the savings and are going to apply again in November (6 months from debt cleared).

We were annoyed initially but it makes more sense in the long term. She also has a graduate loan (of insane proportions) and I have a car loan but these didn't bother the bank, just the CC debt.

Term debt such as student debt or loans for a car show a person's ability to deal with regular payments and budgeting - provided the payments are made. Carrying a high interest credit card debt while building up low rate savings illustrates someone who cannot make rational financial decisioins. It's not even that they should assess that on the basis of the net amount t but they should make some further reductions for the financial illiteracy enabled by the credit card limits available to that person. You might think this is harsh but it reflects behaviour.

Greenmachine

If you owe 9K on your credit cards, then your saving are worth 9k less, and every minimum payment you have made in the interim has been squandered, and you could have been used this opportunity to reduced your debt. This should have been your priority. I am not saying any of this to have a go at you. I am a long way from getting on the property ladder, but I with I do have personal experience with CC debt and it is where my priority lie right now. I know you want to get on the property ladder, but you really have to deal with the low hanging fruit first and bank and to see that you can make sound financial decisions. All Debt will be considered when looking at your ability to repay. If you have 40K saving and only and €4k in credit card debt that would all be consider all with a whole plethora of other things like monthly outgoing car repayments, health insurance, PPI, Salary, Age, how long your in your job, repayment, history, credit rating etc etc.

In general I think it is good to have access to a large credit card limit provided you don't use it.

Trish56

You should enquire what the repayments on a 9k short term loan will cost you monthly. If you qualify for an extra 80k well then having a monthly loan repayment should not affect you getting a mortgage. Plenty of people have car loans and once they can afford it there is not a problem.

Yes you were foolish running up debt on a credit card at a rate of interest of approx. 23% and you probably only getting 1% on your savings.

I think you should borrow the 9k over 5 years, repayments should be around €200 per month and interest rate will be less than 50% of what you are paying on the credit card.

I think a lender will look at the overall picture and perhaps accept that you were a bit foolish in managing your money. Am surprised that a broker would submit your application to a lender with such high credit card debt instead of advising you to clear that debt immediately and then submitting your application.

I would recommend if you get a short term loan to reapply in 3 months time.

Best of luck

fits

Loan amount: €9,000
Interest rate: 13%
Term: 2 years
Monthly repayment: €424.86
Cost of Credit: €1,196.56 - See more at: http://www.consumerhelp.ie/loan-calculator#sthash.dA55KJmc.dpuf

If they can save back the 9k in 9 months they are better off doing that than taking out a loan for the sake of being able to apply 3 months sooner. They are delayed for six months, whatever they do.

Trish56

The calculation I used was 9k loan, interest rate = 12% term = 5 years = repayments of €200.20 monthly. The rate is variable so can be paid off quicker however the repayment is smaller which should not affect his monthly net disposable income when applying for a mortgage. I see no reason for him to be delayed 9 months in getting a loan approval.

fits wrote: »

If they can save back the 9k in 9 months they are better off doing that than taking out a loan for the sake of being able to apply 3 months sooner. They are delayed for six months, whatever they do.

fits

Tegan86 wrote: »

This is what the bank has asked us to do and told us to come back to them in 6 months.!!

Bank has told them to come back in 6 months.

SarahMollie

As other posters have indicated, €9k CC debt is a ridiculous situation when you have cash reserves which exceed that amount. You're only flattering yourself by saying you have €20k savings.

Facts are the CC is the most expensive form of borrowing money (bar a loan shark) and that interest on deposits is really low at the moment. Therefore, the money in your savings is earning you very little and your borrowings are costing you a lot. Also, you mention that you're paying more than the minimum monthly, as if this is supposed to be impressive. You should pay it all off monthly before savings.

If you cant work out that;

a) you do not have €20k in savings (at best you have €11k)
b) that CC debt is expensive

Then the bank rightly assume that you don't understand money, and therefore won't lend to you.

Trish56

There's more than one bank lending money for mortgages so he doesn't necessary have to wait for 6 months. Any good broker can make a case for him and present all the positives in his application. It really does make a difference in how a case is presented to an underwriter either by a mortgage advisor or a broker.

fits wrote: »

Bank has told them to come back in 6 months.

Tegan86

Trish56 wrote: »

You should enquire what the repayments on a 9k short term loan will cost you monthly. If you qualify for an extra 80k well then having a monthly loan repayment should not affect you getting a mortgage. Plenty of people have car loans and once they can afford it there is not a problem.

Yes you were foolish running up debt on a credit card at a rate of interest of approx. 23% and you probably only getting 1% on your savings.

I think you should borrow the 9k over 5 years, repayments should be around €200 per month and interest rate will be less than 50% of what you are paying on the credit card.

I think a lender will look at the overall picture and perhaps accept that you were a bit foolish in managing your money. Am surprised that a broker would submit your application to a lender with such high credit card debt instead of advising you to clear that debt immediately and then submitting your application.

I would recommend if you get a short term loan to reapply in 3 months time.

Best of luck

Thanks so much for the reply. It was the bank that advised us to apply as is, we were going to try to clear the debt first but the advisor thought that even with the debt we had a very good chance of getting approved. Of course we always knew this may not be the case but foolishly took the chance. We could comfortable afford to borrow €9000 and repay it over two years but the general consensus seems to be that we have shown that we cannot manage our money properly and should pay the cards using savings and spend the next 6 months rebuilding our saving and not using credit cards to demonstrate otherwise.

Thanks a mill

shamrock55

Is it ok to have a credit card and use it as long as its cleared every month,or do the banks just not like you having a credit card at all when applying for a mortgage?

Tegan86

SarahMollie wrote: »

Facts are the CC is the most expensive form of borrowing money (bar a loan shark) and that interest on deposits is really low at the moment. Therefore, the money in your savings is earning you very little and your borrowings are costing you a lot. Also, you mention that you're paying more than the minimum monthly, as if this is supposed to be impressive. You should pay it all off monthly before savings.

If you cant work out that;

a) you do not have €20k in savings (at best you have €11k)
b) that CC debt is expensive

Then the bank rightly assume that you don't understand money, and therefore won't lend to you.

I wasn't trying to sound impressive by saying that we're paying more than the minimum on credit cards each month, I was just stating the facts of what we're actually doing. I know it seems ridiculous to have this level debt and money in savings available to repay it but based on all calculations we did online and with the bank itself, €9000 debt didn't impact on the amount we wanted to borrow so we prioritised getting the deposit together instead. I now see this was a mistake as credit card debt is not viewed the same as car loans, personal loans etc. We now know what we need to do for approval and hopefully will be in a better position when we reapply.

Tegan86

Trish56 wrote: »

There's more than one bank lending money for mortgages so he doesn't necessary have to wait for 6 months. Any good broker can make a case for him and present all the positives in his application. It really does make a difference in how a case is presented to an underwriter either by a mortgage advisor or a broker.

Thanks again Trish56,

Am I right in saying that our recent refusal will be on our ICB report? If we reapply with another lender in a few months will this have a negative impact on our application?

Tegan86

shamrock55 wrote: »

Is it ok to have a credit card and use it as long as its cleared every month,or do the banks just not like you having a credit card at all when applying for a mortgage?

Credit cards are absolutely fine once you don't do as I have!! If you pay your card off each month you are demonstrating that you can manage your money.

Trish56

It will be on your ICB that you made an enquiry to the lender but wont state that you were declined.

Tegan86 wrote: »

Thanks again Trish56,

Am I right in saying that our recent refusal will be on our ICB report? If we reapply with another lender in a few months will this have a negative impact on our application?

Trish56

There's no problem having a credit card once you can show you can manage it properly by paying it off monthly.

shamrock55 wrote: »

Is it ok to have a credit card and use it as long as its cleared every month,or do the banks just not like you having a credit card at all when applying for a mortgage?