It is possible to get a mortgage with a deposit partially paid for by a loan. However, by which means you acquire the loan can have a big impact on how favourably you are looked at by mortgage lenders as well as having some financial ramifications for yourself.
Mortgage lenders tend to look more favourably on those who can put down a 10 percent deposit or more and saving this amount is no easy task – particularly if you are renting. Given this, its little wonder that many people enquire as to whether they can take out a loan borrow for the deposit funds.
Its worth considering that most mortgage lenders will require that at least 5% of your deposit is made up from your own savings; furthermore, mortgage lenders will do credit checks and will instantly know where deposit funds have come from. They will also require you to sign a declaration as to how the deposit was funded. Therefore high interest loans and funds via a credit card or overdraft are best avoided.
Bank loans or similar are not normally acceptable, where they are considered you should understand that the Mortgage company will assess your ‘debt to income’ ratio – in other words, your ability to repay both the mortgage and the loan along with any other credit card dents and financial commitments.
A family loan (often the Bank of Mum and Dad) is viewed in much the same way although its doubtful that there will be little if any interest making such a loan more affordable. Parents or close members of family might wish to consider a ‘Gifted Deposit’ since such a sum is not expected to paid back – having a positive impact on your ‘Debt to income’ ratio.
A Directors Loan
A Directors Loan – from your own company can sometimes be a good idea although most mortgage providers will expect you to demonstrate that the funds taken out corelate to funds that you originally introduced into the business. This might have financial implications that could impact on you and therefore your ability to pay the mortgage further down the line. For example, this will affect the level of Corporation Tax your business pays; it could also increase your income tax or Taxable Benefits in Kind (BIK).
If its another property you are looking to raise deposit funds for, you could also consider releasing equity from your existing property or even a bridging loan. A bridging loan is an interest only loan and meant as a short-term measure to ‘bridge the gap’ between an incoming debt and a line of credit becoming available. For example, if the sales of your existing property is going through and you have seen a new home that you want to ‘snap up.’