Getting a loan not a mortgage to buy a house

desert.emerald

Hi. I've enquired about borrowing €80000 to buy a house for €100000. I have €20000 deposit. Financial institution (Credit union) are willing to issue the money for home improvements and want builders quotes to issue the amount to me. I naively wasn't expecting this and didn't say it was for a house purchase as I panicked on the phone. Do they really want to know exactly where the money is going? Could I get a builder to give me a quote and not get work carried out? Is this illegal? I do not want to do anything wrong. The repayments are not a problem. Thanks for your help.

Trish56

Credit Union do mortgages now and the rate would be much cheaper than a personal loan so just apply for a mortgage.

Poor_old_gill

Why would you want a personal loan when the interest rate on a mortgage is almost certainly lower?

Just get a mortgage for the same period as you were planning on getting the personal loan for

3DataModem

Poor_old_gill wrote: »

Why would you want a personal loan when the interest rate on a mortgage is almost certainly lower?

Just get a mortgage for the same period as you were planning on getting the personal loan for

There are a lot of benefits to not having a charge on your property, and to having an unsecured credit. In a world where it might be 3% vs 7% the repayments over say 8 years are about 10% higher and the total interest cost is about 14k higher.

Poor_old_gill

3DataModem wrote: »

There are a lot of benefits to not having a charge on your property, and to having an unsecured credit. In a world where it might be 3% vs 7% the repayments over say 8 years are about 10% higher and the total interest cost is about 14k higher.

He said the repayments are not a problem so the obvious thing to me would be to go with the lower interest rate.

What would you see as being the benefit in the above scenario?

Jim2007

desert.emerald wrote: »

Do they really want to know exactly where the money is going? Could I get a builder to give me a quote and not get work carried out? Is this illegal? I do not want to do anything wrong. The repayments are not a problem. Thanks for your help.

Yes it's a criminal offense, should the institution decide to make a complaint - which I would say is unlikely. Nobody is going to give you €80000, without verification of the purpose, the institutions are well aware of people asking for a loan for one thing, with the intention of using it for something else.

Could I get a builder to give me a quote and not get work carried out?

That would be a really bad idea.

coylemj

3DataModem wrote: »

There are a lot of benefits to not having a charge on your property, and to having an unsecured credit.

You may have misread the OP's first post because the number was typed with no commas. There are four zeros in the amount required - it's eighty thousand. Which the OP requires to buy a house for €100,000 i.e. 80% LTV. Nobody is going to lend that kind of money without security. Which means a mortgage.

3DataModem

coylemj wrote: »

You may have misread the OP's first post because the number was typed with no commas. There are four zeros in the amount required - it's eighty thousand. Which the OP requires to buy a house for €100,000 i.e. 80% LTV. Nobody is going to lend that kind of money without security. Which means a mortgage.

I didn't misread at all.

There are banks in Ireland offering 75,000 unsecured loans x 5 years at rates as low as 6-7%.

LTV is irrelevant in these cases.

3DataModem

Poor_old_gill wrote: »

What would you see as being the benefit in the above scenario?

Two that spring to mind are:
- He can sell the property whenever he wants, change use of property, etc without reference to the loan provider.
- He can take out another loan (i.e. a mortgage) in the future, charged to the property.

lalababa

You'd get good and bad advice on here. But you can't beat advice from your accountant or independent financial advisor. Also you could talk to Another credit union on their policies of lending/mortgage.

Ps...Let us know the/your reasons behind a loan rather than a mortgage...

Hoboo

3DataModem wrote: »

Two that spring to mind are:
- He can sell the property whenever he wants, change use of property, etc without reference to the loan provider.
- He can take out another loan (i.e. a mortgage) in the future, charged to the property.

Could he/she default on the loan without risking their home?

Pinoy adventure

No they really don't care where the money is going.they only care about the loan being repaid and more importantly is the interest on the loan,which could be quite high compaired too a mortgage.

You could always find a wealthy individual who can fund your purchase and give the a couple of % return on there investment.it would be all above board and legal

3DataModem

Hoboo wrote: »

Could he/she default on the loan without risking their home?

Yes exactly. A 3rd benefit

They can also jointly own the property with someone who is not a party to the loan. A 4th.

grogi

Poor_old_gill wrote: »

He said the repayments are not a problem so the obvious thing to me would be to go with the lower interest rate.

What would you see as being the benefit in the above scenario?

If repayments are not a problem, OP doesn't need to pursue cheapest option. Personal loan is cheaper to service, as it doesn't involve solicitors as much and it doesn't transfer the deeds to the bank.

It's just simpler, you get the transfer and v'oila.

listermint

None of 3Ds ideas as to why choose a loan over a mortgage sound like reasonable advice considering the sums involved. What I mean by that is you could pay back the loan rate into a mortgage and have the whole thing paid down twice as fast as the loan thus shortening the entire time to clearing the money and having the property.

beazee

Getting a loan instead of a mortgage requires less paperwork thus easier to "hide" the transaction from your spouse, maybe?

RachelsCousin

I haven't seen a single valid reason put forward for using a loan over a mortgage. It's simply far more expensive.

You need a solicitor when buying a property, even if a cash buyer. There are some savings; no valuation required, charge not registered and maybe 200 less in professional fees. But interest in the first year will be at least 2,400 higher. So anyone who says it's cheaper is just trying to win an argument, not give advice.

You also need to think about safe storage if your title deeds.

While it's technically possible to get an unsecured loan of close to the amount you require, unless you've a huge cashflow you won't meet affordability criteria so you won't get approved. It's normal for a lender to look for evidence of spend for home improvement loans, and they'd expect phased drawdown not a lump sum.
It's not unheard of for a lender to ask for proof of ownership of home when getting home improvement loan, but not always.

Expect lots of questions for anything over 30k. And lenders do care what the purpose of loan is.

grogi

listermint wrote: »

None of 3Ds ideas as to why choose a loan over a mortgage sound like reasonable advice considering the sums involved. What I mean by that is you could pay back the loan rate into a mortgage and have the whole thing paid down twice as fast as the loan thus shortening the entire time to clearing the money and having the property.

Why is Internet always full of 'I know better what you should do!'?

If the OP wanted a financial advice, it would have been stated.

km991148

coylemj wrote: »

You may have misread the OP's first post because the number was typed with no commas. There are four zeros in the amount required - it's eighty thousand. Which the OP requires to buy a house for €100,000 i.e. 80% LTV. Nobody is going to lend that kind of money without security. Which means a mortgage.

Not everyone can get high value unsecured personal loans of course, but they are available.
Just because you haven't had to try get one or not seen them available to doesn't mean the same for everyone..

Re the loan: is the property in Ireland as well?
Technically it is against the TS and C's if the loan so if the bank gets wind if it then it might dour the relationship with the bank (but unlikely if you keep paying it..).

TP_CM

A high earner who intends to clear the loan sooner by over paying doesn't need to worry as much about interest rates. It also opens them up to property sales which are cash only, which is probably a growing number at the moment due to uncertainty around Brexit and Covid. Sellers simply prefer cash. It makes sense to me if they are ok with the higher repayment value.

I'd personally be surprised if you get that far OP. They will want some kind of documentation to prove what the funds are for. At some point, all the messing around will become more stressful than just going for a mortgage. Small mortgage like this shouldn't take long for a person who has no issues with repayments. It depends on why you want to go personal loan instead of mortgage. So what's your issue with a mortgage? Is it that you think the personal loan is easier? Or is it because the sale requires cash?

Harpon

3DataModem wrote: »

Yes exactly. A 3rd benefit

They can also jointly own the property with someone who is not a party to the loan. A 4th.

5. No valuation needed.
6. No mortgage protection policy needed.
7. Won’t be obliged to get home insurance, given the value of the property he may deem that a risk worth taking.
8. Legal fees should be less.
9. Fraction of the paperwork needed.
10. Mortgage application process will take months longer than a loan application.

3DataModem

RachelsCousin wrote: »

So anyone who says it's cheaper is just trying to win an argument, not give advice.

Nobody has claimed the loan is cheaper. It's a fair bit more expensive. But some people are willing to pay a premium to have flexibility.

RachelsCousin

3DataModem wrote: »

Nobody has claimed the loan is cheaper. It's a fair bit more expensive.

The term 'cheaper to service' is definitely misleading. And wasn't used by you.

coylemj

km991148 wrote: »

Not everyone can get high value unsecured personal loans of course, but they are available.
Just because you haven't had to try get one or not seen them available to doesn't mean the same for everyone..

If a loan of that size is available without security, they're probably given to the type of person who doesn't need to seek financial advice on an internet forum.

El Tarangu

Op, can you explain to us the rationale of why you want to do it this way, rather than getting a mortgage?

coylemj

El Tarangu wrote: »

Op, can you explain to us the rationale of why you want to do it this way, rather than getting a mortgage?

The house the OP wants to buy is priced at 100K. In that price bracket there's very possibly an issue with the title. Or there may be no title at all - you pay 'key money'. For which a mortgage is not possible.

Jim2007

3DataModem wrote: »

There are banks in Ireland offering 75,000 unsecured loans x 5 years at rates as low as 6-7%.

which banks exactly? And can you confirm that you know someone that got such loan?

3DataModem

Jim2007 wrote: »

which banks exactly? And can you confirm that you know someone that got such loan?

Easy to look up on bonkers.ie

E.g.
An post money: 5.9%
Ulster Bank: 7.9%
(I can confirm these are both unsecured loans, but there are others listed)

I can confirm I have personally seen an offer for a 65k UB loan on the above basis, unsecured, just based on ability to repay, in last 12 month.

Kramer

Jim2007 wrote: »

which banks exactly? And can you confirm that you know someone that got such loan?

If it's any further help, I can confirm someone getting a €60k+ unsecured loan recently, based on their history & income.

This pandemic has not affected many people's finances & even added wealth to many.

I agree there are many reasons someone could prefer a personal loan over a mortgage. Sure, they'll pay more, but that extra cost may well be justified.

Best of luck to the op with their new house anyway .