Short term loan from friend to close house purchase before mortgage is secured

boombang

There is a property I would like to buy but to get it I need to purchase now. I can get mortgate approval, but it will take a few weeks. I have a friend who has the money to lend me to bridge me between the purchase and drawing down the mortgage. Is it possible to buy the house with his loan and pay him back in a few weeks with the mortgage?

The mortgage will be approved. I am on very good terms with my friend.

Creamy Goodness

the bank will want to know where the money has come from (if it's over AML limits), you'll need to get them to sign a letter saying it's a gift and that they want no part of the house. Even then it's a bit sketchy in the eyes of the bank.

Allinall

Don't do it for a multitude of reasons.

You cannot say for certain that the mortgage will be approved.

Your friend cannot say for certain that you will repay the money, no matter what level of "good terms" you are on.

When you apply for the mortgage, you will not be a first time buyer, so different qualifying criteria will apply.

That's just off the top of my head.

boombang

https://www.boards.ie/discussion/comment/120532412#Comment_120532412

While it might sound cocky, 1 and 2 are really not a problem. 3 is not one I had considered. Thanks for raising that.

Allinall

https://www.boards.ie/discussion/comment/120532470#Comment_120532470

1 will certainly be a problem.

There is a whole world of difference looking for a mortgage to buy a house, and looking for a mortgage to pay off a third party loan.

boombang

https://www.boards.ie/discussion/comment/120532513#Comment_120532513

Ah, it's seems I am being cocky. I had presumed that once the loan is secured against a given property it would not matter if the money is being used to pay the vendor or someone who has lent money.

dennyk

https://www.boards.ie/discussion/comment/120532570#Comment_120532570

That's technically the case, yes, as money is fungible. The issue is that your friend's loan will be a material change in your circumstances and the bank will almost certainly not approve your mortgage under those circumstances, because (a) they will be concerned about how your obligation to pay back your friend's loan will impact your ability to make your mortgage repayments, and (b) there would be a risk that your friend's loan could potentially give your friend a legal claim on your property, which would significantly complicate matters for the bank if you did fall behind on your repayments and the bank had to repossess it. The bank will almost certainly not issue a mortgage loan, or allow you to draw down on a loan even if it was previously approved, in that case.

Now, you could have your friend fill out an affidavit stating that the money is a gift, not a loan, no repayment is expected, and they waive any and all claims on the property in question, but that has its own problems. First, your lender is less likely to be willing to accept such a claim from someone who's just a "friend", because the chances of it being false are much higher; it would be very unusual for someone to genuinely gift a friend a high five- or even six-figure sum. If this friend were actually close family, the bank might be more willing to accept that claim, but as a friend, not so much.

The other issue with a gift letter is that since your friend is unrelated to you, they fall under the Group C threshold for CAT, which means you will almost certainly exceed the Group C limit with this "gift" and thus you would be liable to pay CAT. In addition, if you should happen to "gift" your friend a coincidentally equivalent aggregate sum at some later point in time, unless you're "gifting" them €3k a year or less, then those "gifts" would also have tax implications for your friend.

3DataModem

"Now, you could have your friend fill out an affidavit stating that the money is a gift, not a loan, no repayment is expected, and they waive any and all claims on the property in question, but that has its own problems."

The bank will be pretty wary about this. They'll ask you to get an letter signed confirming it is a gift, and also to engage their own solicitor (not yours) to provide advise prior to signing the letter confirming they understand they are giving you money with no claim on the property and no promise to repay. If your friend has other commitments (e.g. in the middle of a divorce or separation) than signing such a document will be nigh on impossible. Note; I've done this before, but for a relatively small amount (30k). Then you pay tax on that lovely gift, as the poster above says. Pain in the nuts.

Now... if the delay between closing with borrowed money and drawdown is short, then it is possible with a smart solicitor then the process can be bent a little to suit you. Solicitors don't move money fast, they move undertakings fast (i.e. promises to deliver money, deeds, etc). The actual delivery can sometimes be a LONG time after the notional closing date, so some fudging is permitted.

Example; I know somebody that bought a new property a few years ago. They are clearing the mortgage this month (lucky them) and have asked their solicitor to help get the deeds from the bank. Well, they haven't actually lodged them with the bank yet. So they are saying they may be able to complete the land registry as if there was no mortgage i.e. there'll be no record (historically) of the bank's interest in the new property at all. Even though they fronted the money almost 5 years ago(!) Seems nuts, right? But all above board in the weird world of solicitor's undertakings.

So chat to your solicitor, they may suggest that the friend just lodges the money in their client account for a few weeks and ta-daa in a month or two all is how it should be.

Kurooi

Your friend doesn't need to give you the money. You just need someone to sign you a gift cert saying that they will. They don't actually need to have that money or transfer anything over at that point in time.

Try family first. It's just paper work. If you then save the cash down by draw down, talk to your bank about using cash instead just do this ahead of time.

Smee_Again

Get your friend to buy the house now and then sell it to you when you're ready to buy it.

Fian

https://www.boards.ie/discussion/comment/120559202#Comment_120559202

This is dangerous. Like criminal fraud dangerous.

stevenmu

The bank won't let you draw down a mortgage to give the money to some random guy who loaned you the money first. They will only let you draw down to send the money to the seller in exchange for transferring ownership of the property (via solicitors and deeds etc).

What might work is for your friend to purchase the house now, and to then sell it to you, you could then draw down the mortgage to pay him to buy the house from him. Though I don't know if there's any implications for your friend in buying and selling a property so quickly.

Kurooi

https://www.boards.ie/discussion/comment/120559270#Comment_120559270

Where do you think a crime is committed? I need to be careful here , promised my niece a bike might go to jail if she changes her mind.

dennyk

https://www.boards.ie/discussion/comment/120559202#Comment_120559202

You've got that backwards. The lender will want to see that you have the actual money for a deposit now, and they'll want a gift letter if any significant amount of that money was given to you recently by another party. If you go and give them a gift affidavit from a third party claiming that they gave you, say, €50k, but you don't actually have a bank statement showing the transaction and don't even have that €50k in your account, your lender is just going to be very confused at best, and at worst might decide that you seem to be incompetently trying to pull some sort of scam on them and refuse to issue you a mortgage at all even if you do get your finances sorted out later.

In any case, the OP's issue was that they needed to act immediately to buy the property in question, more quickly than they'd be able to secure a mortgage approval, so they would definitely need the cash right away as that's what they'd be using to buy the property.

Kurooi

https://www.boards.ie/discussion/comment/120562511#Comment_120562511

No transfer, just a gift form. I very clearly said the friend doesn't have to give the money. Don't need to transfer. But this only works with mortgages. And not a chunk of the value of the house.

Engaging in such a deal with a friend is highly inadvisable imo, things can go very very wrong. No guarantees what life throws, so much to potentially go pear-shaped. That’s my tuppence worth of wisdom anyway.