Applying for a mortgage when paying back a loan

Plasandrunt

Hi

I'm about to start applying for a mortgage.My saving has been going well. The mortgage I'm looking for isn't huge (€115k approx) as i already have my own property that I bought with cash last year plan to sell that in order to buy a house

I'm currently paying back a loan I got out 3 years ago. I went through some difficulties in the meantime but I've been back on track for the last year or so making increased payments in order to get the arrears down. I'm planning to pay off the loan with the proceeds of the property i own and still have enough to buy a new place. There's currently about 8k remaining on the loan.

My friend has offered to give me the money so i can pay off the loan in total so that it isn't as much of an issue with the banks however I'm a little reluctant to take the loan off him.

So wondering if the banks will take into consideration that despite the difficulties I went through I'm paying back the loan at an increased amount plus the fact I'll be able to pay off the loan completely ahead of schedule or will it just go against me that i went through a period where I fell behind?

bricky06

Could you potentially use some of your mortgage savings to pay off, say, half the loan? Then pay off the other half over a few months while continuing to save?

This is pretty much what I doing right now. I paid a lump off my car loan a couple of months ago and should have it cleared by July. I'll then start looking at mortgages towards the end of the year.

If it was me I wouldn't be borrowing from a friend but I don't know your circumstances.

jlm29

Have you checked your credit rating? I'd imagine that if you have a loan in arrears, the bank might be more interested in the difficulties you mention and in your credit history than in the actual loan itself.

Plasandrunt

So I recieved a letter after sending off for my credit rating but all I've recieved is details of the loan that I'm paying back at the moment. Telling me how much I owe and the freuquency of the payments. Should i have not recieved an actual rating like an "A" or an "F" ?

myshirt

It is points based, and any arrears or underpayments stay with you for 5 years.

Plasandrunt

ah, like I said previously i went through a period of financial difficulty but have been in a decent position for the past year or so. I've got the loans revised and am paying off a higher monthly rate then the initial agreement.

The credit report is telling me I'm 9 months in arrears on the loan with no missed payments the last 24 weeks so obviously that doesn't look great but as my plan is to with the sale of my current property I'll be able to clear the loan before schedule.

Mink

OP, the bank will have access to this report as soon as you apply for a mortgage, whether you clear the loan or not. The fact that you were in arrears will stay on your credit report for the next 5 years.

What I would suggest is gather some evidence of the reason you were in arrears and get it very clear in your own head what you will tell the bank. You could try and apply for a mortgage anyway once the loan is cleared but they may just offer a reduced amount.

It would be madness to apply for a mortgage with a loan outstanding that is already in arrears, people did that sort of thing at the height of the boom.

For what it's worth, we applied for a mortgage with a loan outstanding but we were offered a significant amount less than what we would have been offered with the loan cleared.

Plasandrunt

so what happens if i sell the property i own, clear off the loan using the proceeds yet continue to save and apply for a mortgage a few months down the line? Will the banks take it into consideration or will the fact that I let the loan get into arrears practically rule me out of getting a mortgage in the forseeable future?

dev100

Plasandrunt wrote:

so what happens if i sell the property i own, clear off the loan using the proceeds yet continue to save and apply for a mortgage a few months down the line? Will the banks take it into consideration or will the fact that I let the loan get into arrears practically rule me out of getting a mortgage in the forseeable future?

Even having to many credit checks done can be a black mark against you .... basically a financial institution will only see black or white they just want to know if you can repay on time everytime. If you have defaulted on your repayments it'll show up and would have a negative impact on a new loan/mortgage . Talk to a mortgage advisor it could depend on how much equity from the sale that you can then put into a new mortgage if you can get one.

myshirt

A lot of good people fell on hard luck for a couple of months, and it is coming back to bite them.

The banks are just very cautious and only lending to the most squeaky clean prospects. You'd almost want to submit a picture of you with the pope as part of your application.

Op, what you are doing is the right thing. Demonstrate recent good repayment behaviour, and let them see it. This helmet in the kitchen whole frying an egg approach from the bank will cease gradually, they will lend.

Manion

You may have an easier time obtaining a mortgage from a credit union as opposed to a building society or bank.

jlm29

Manion wrote: »

You may have an easier time obtaining a mortgage from a credit union as opposed to a building society or bank.

Not if he has a poor credit rating I'd imagine. The CU have gotten a good bit stricter with their lending in recent years