Borrowing from friends

WhiteWalls

Is it possible to borrow say 40k from family & friends for a mortgage? Not for thr deposit but for the sum towards the house itself? Would it have to be in your account 6 months before you get the mortgage?

Dav010

WhiteWalls wrote: »

Is it possible to borrow say 40k from family & friends for a mortgage? Not for thr deposit but for the sum towards the house itself? Would it have to be in your account 6 months before you get the mortgage?

Depends on whether you have friends/family crazy enough to lend you that type of money. How will you pay them back, on top of paying a mortgage/cost and kitting out a house? No doubt the €40k would be a short term loan rather than over 25 years like a mortgage, would you be able to repay it within 2-3 years, or at short notice?

WhiteWalls

Could I technically borrow it from another institution to pay it back? I know that sounds mad but from my calculations, the rent I'm paying now would be less than the mortgage repayment and another loan which would be used to repay family members.

Is it common to do this?

Only an idea at the moment for me but I would be in a position to borrow it from family!

Peregrinus

WhiteWalls wrote: »

Could I technically borrow it from another institution to pay it back? I know that sounds mad but from my calculations, the rent I'm paying now would be less than the mortgage repayment and another loan which would be used to repay family members.

Is it common to do this?

Only an idea at the moment for me but I would be in a position to borrow it from family!

What other institution is going to give you an unsecured loan of €40k to repay your family? And, if such an institution exists, why not just borrow from them straight away rather than from your family?

Bass Reeves

WhiteWalls wrote: »

Could I technically borrow it from another institution to pay it back? I know that sounds mad but from my calculations, the rent I'm paying now would be less than the mortgage repayment and another loan which would be used to repay family members.

Is it common to do this?

Only an idea at the moment for me but I would be in a position to borrow it from family!

It was a common practice 30-40 years ago. This was especially common before banks started taking two wages into account. Generally people would borrow the excess from a credit union. The advantage of the CU was at the time you could pay excess off easier as you could arrive at the counter with your book and the money.

There is nothing to stop you doing it. There should be no need to have it in your account if you have a separate deposit. Banks approve you for a mortgage. They do not decide on the house you buy or pay for.

Nearly 40 years ago I knew a lad that worked a milk run in the morning before going to work to pay off a CU Lian that he had borrowed to buy a house. He was single at the time. He borrowed about 20% of the house price from the CU. He bought the house as an investment

cruizer101

Bass Reeves wrote: »

There is nothing to stop you doing it. There should be no need to have it in your account if you have a separate deposit. Banks approve you for a mortgage. They do not decide on the house you buy or pay for.

The mortgage is tied to a specific property, they do give you approval in principle for an amount so you can start house hunting but when it comes down to it they have to approve the mortgage on that specific house.

OP the problem is the bank will look for source of funds, if an extra 40k shows up out of nowhere they will require a gift letter stating that it is not a loan.

beauf

WhiteWalls wrote: »

Could I technically borrow it from another institution to pay it back? I know that sounds mad but from my calculations, the rent I'm paying now would be less than the mortgage repayment and another loan which would be used to repay family members.

Is it common to do this?

Only an idea at the moment for me but I would be in a position to borrow it from family!

The ability to maintain savings is a measure of how well you are able to deal with economic shocks going forward, and your general financial prudence. So that's measured over time. Mortgage should really be no more than a third of your income ideally less.

But it's only one way to do it. But many get into difficulty when they over commit to mortgages and loans.

gaz wac

They wont give you 40k, but my CU will give you up to 25k for a home improvement loan and you will only need 10% (2,500) in your account. Get the loan from your friend, draw down your mortgage and then request the loan after the bank has run their final credit checks, but as beauf was saying, that's now committing you to, say a 5 yr loan, of €416 which is a lot on top of a mortgage, bills and day to day living.

Bass Reeves

beauf wrote: »

The ability to maintain savings is a measure of how well you are able to deal with economic shocks going forward, and your general financial prudence. So that's measured over time. Mortgage should really be no more than a third of your income ideally less.

But it's only one way to do it. But many get into difficulty when they over commit to mortgages and loans.

I accept all that. However with the advent of fixed mortgage rates that are below average variable rates which did not happen historically borrowing limits are below what many can afford. As well while the 33% is a good principal, lending limits fail to take into account where people work in jobs that there rate of pay increases annually, such as teachers , Gardai and Nurses. Many people such as the OP find themselves trapped in rental accommodation where mortgage repayments would be substantially below rental costs. As well there mortgage can be fixed for five or ten years the rental rate will more than likely increase.

Because of this I can see OP's predicament with no abate in house prices, no availabilities of affordable homes in many areas he is being forced to look at alternative funding strategies. As long as OP is strategically aware of the pit falls and as long as he dose not over borrow elsewhere I can see no issue. I be much more worried about people that borrow for lifestyle choice such as cars and holidays which can often amount to more than OP may intend to borrow

The Mighty Quinn

We borrowed a significantly smaller amount than 40K, less than half, from my father.

Got a letter from him for the bank stating it was a gift and did not need to be repaid. This was 2017.

Bank accepted with no issue.
I've repaid Dad since.

beauf

Bass Reeves wrote: »

I accept all that. However with the advent of fixed mortgage rates that are below average variable rates which did not happen historically borrowing limits are below what many can afford. As well while the 33% is a good principal, lending limits fail to take into account where people work in jobs that there rate of pay increases annually, such as teachers , Gardai and Nurses. Many people such as the OP find themselves trapped in rental accommodation where mortgage repayments would be substantially below rental costs. As well there mortgage can be fixed for five or ten years the rental rate will more than likely increase.

Because of this I can see OP's predicament with no abate in house prices, no availabilities of affordable homes in many areas he is being forced to look at alternative funding strategies. As long as OP is strategically aware of the pit falls and as long as he dose not over borrow elsewhere I can see no issue. I be much more worried about people that borrow for lifestyle choice such as cars and holidays which can often amount to more than OP may intend to borrow

This issue is if you don't get promoted, lose a job end up in a lower paying job or get sick. There is no buffer.

I'm not saying you can't do it, but be aware it's higher risk strategy.

Also before Covid the market had started to fall or at best stall. Even if covid props it up for a couple of years you're likely buying at the market peak at a marginal income.

ted1

You need to explain where it came from.
If it’s a loan that’ll reduce your repayment capacity a d they’ll reduce your mortgage or simply don’t give you one.

If you say it was a gift you need a signed declaration thats it’s not repayable. If it’s not from family you’ll then have a tax implications.
If it’s from family it may affect any future inheritance

WhiteWalls

gaz wac wrote: »

They wont give you 40k, but my CU will give you up to 25k for a home improvement loan and you will only need 10% (2,500) in your account. Get the loan from your friend, draw down your mortgage and then request the loan after the bank has run their final credit checks, but as beauf was saying, that's now committing you to, say a 5 yr loan, of €416 which is a lot on top of a mortgage, bills and day to day living.

Do you need to show proof of receipts for works carried out for the CU?

WhiteWalls

The best way to go about this predicament it would seem is to have the monies in your account as you go for the mortgage instead of it just appearing out of nowhere?

ted1

WhiteWalls wrote: »

The best way to go about this predicament it would seem is to have the monies in your account as you go for the mortgage instead of it just appearing out of nowhere?

They look through your statements

3DataModem

You'll need to have the money in hand prior to drawdown.

The bank will want to see a letter confirming it is a gift, and some banks will insist that they take independant legal advice that they understand it is a gift and have no claim on the property in future.

I know someone who had a redundancy payout that the bank were not aware of (due to them not telling the bank they were made redundant) so gave it to their sibling who "gifted" it right back

Faith

ted1 wrote: »

You need to explain where it came from.
If it’s a loan that’ll reduce your repayment capacity a d they’ll reduce your mortgage or simply don’t give you one.

If you say it was a gift you need a signed declaration thats it’s not repayable. If it’s not from family you’ll then have a tax implications.
If it’s from family it may affect any future inheritance

This is my understanding also. If you've received a loan, the bank will see it as the loaner having a claim on your property, so the bank will lend less to mitigate their risks should you be unable to pay.

If it's a gift, you'll need a signed letter stating it's a gift and that the gifter has no legal claim to the house.

The latter puts the money giver in a tricky position as you could simply refuse to repay them and they'd have no way to force you to repay.

gaz wac

WhiteWalls wrote: »

Do you need to show proof of receipts for works carried out for the CU?

I was told no and I pretty much told her up straight what I wanted to do, same as what you wanted to do. I just never needed it in the end.

WhiteWalls

I mean having the money in the account prior to getting mortgage aporoval, not just a lump sum appearing a coupe of weeks prior to money being drawn down.

So in other words, having it there for 6 months or so prior to mortgage application

Bass Reeves

beauf wrote: »

This issue is if you don't get promoted, lose a job end up in a lower paying job or get sick. There is no buffer.

I'm not saying you can't do it, but be aware it's higher risk strategy.

Also before Covid the market had started to fall or at best stall. Even if covid props it up for a couple of years you're likely buying at the market peak at a marginal income.

There is a few issues here. OP has stated he is paying more than the mortgage is. This is a very common issue at present. It's a huge issue in rural Ireland where few houses are being build. 200k borrowed over 25 years is costing about 850 euro/ month.

Another issue that hits people is where people do tommers, or have part time jobs that may not be regularised. I know a lad that has a power washer that he uses Saturdays and a few evenings a week. He cleans patio's and footpaths this time of year. During the summer he cleans slatted units, calf sheds etc etc. He earns 5-8k/ years at it.

So when will the market correct,Neill it be 2 years or 5+ years time. All trends are that any correction will be mainly Dublin and Apartment based when and if it happens. I cannot see a massive correction maybe 10% any higher correction would need a large number of factors to create the debacle that happened form 2008-2012. For OP he could have 5-10 years mortgage or rent paid by then, I prefer to have that amount if mortgage paid.

Admittedly I like to have a bit more deta of tent, wages, proposed mortgage and what sort of work he is in. Biggest problem with waiting is if there is a crash will you be in a position to avail of the opportunity. Anyway as long as you can ignore the begging letters and put up with the hassling Banks find repossession's very hard. Most will p LL ay ball if you are making a good effort to repay.

beggars_bush

never borrow from a friend
unless you don't actually like them

G_R

WhiteWalls wrote: »

I mean having the money in the account prior to getting mortgage aporoval, not just a lump sum appearing a coupe of weeks prior to money being drawn down.

So in other words, having it there for 6 months or so prior to mortgage application

If you're not saving monthly, but have 40k in your bank account when you arrive to apply for the mortgage, they are going to ask where it came from. They will also likely ask for proof. They're dealing with loads of these each day, and quite frankly, they're not idiots.

Your best bet is to get it from a family member, have them say it's a gift, then if you want to repay them afterwards, that's your own business, but the bank won't have an issue with it.

If you take out a loan prior to the application, not only will it reduce your capacity to borrow, you will essentially have borrowed 100% of the purchase price, there's a reason 100% mortgages are not a thing any more.

WhiteWalls

Thanks for all of the responses, appreciate the help