# About to buy a home - but overborrowed?



## househelp (8 Sep 2007)

Age: 30
Spouse’s/Partner's age: 30
1 child


Annual gross income from employment or profession: 
Annual gross income spouse: 26,000 / 20,000

Type of employment: both employee

Expenditure pattern: spending

Rough estimate of value of home
Mortgage on home : just about to sign, mortgage will be approx 182k
value : 220k
Mortgage provider: EBS
Type of mortgage: fixed rate Interest rate , 4.88

Other borrowings – car loan, 19k (repay 400pm over 5yr) / credit union 23k(repay 300pm over 10yr) / mbna loan 9k(repay 200pm over 5 yr), ub loan 11k (repay 220 over 5 yr))

Do you pay off your full credit card balance each month? no, 100 pm between two
If not, what is the balance on your credit card? 4k

Savings and investments: 3k with cu, tied to loan

Do you have a pension scheme? partner does through work, 100 pm

Do you own any investment or other property? no

Ages of children: 7

Life insurance: tied to house and one covers both of us with proceeds to child if worst should happen, held in trust


*What specific question do you have or what issues are of concern to you? *
we are just closing on a house purchase for just under 160,000. we have been provided with a mortgage on the house for 130,000 and we borrowed the rest from family and the CU loan.
we have been approved extra monies to do up the house (50k) and wanted to also pay off some of our debt with this money. we should only have to spend about 25 - 30k to renovate.
the house value after this will be about 240k. 

we are struggling with all the debt and the purchase is causing alot of stress.

we dont know weather to
1. forget the whole lot and spend the 20k on debts and go back to renting ?
2. go ahead do up the house and pay back the debts with the monies left over from the 50k extra we have been approved? that would be about 25k on the debts - the mortgage will work out at about 930pm
3. god only knows....or maybe aam could help

thanks in advance!


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## Brendan Burgess (8 Sep 2007)

Hi househelp 

1) 
I can't make these numbers add up. What is your current position before buying the house or borrowing the deposit? 

Is it:
Car loan: 19
MBNA       9
UB         11
CC          4
Total     43k 

You are planning to add a further €190k mortgage to buy and renovate the house? 

It doesn't look right. If you have built up these debts over recent years, it looks as if your spending exceeds your income. 

Big car loans seem to be a feature of people with excessive borrowing. You should get by with a banger until you have cash to buy a better car. 

2) You are buying a house for €160. You are spending €30k on it and it will go up in value from €190k to €240k. Are you sure? 

It's a good practice to plan to spend double your estimates. Things always over-run unless you are doing it all yourself. 

If you are getting the house at a favourable price because you know the sellers, then you should consider this deal, otherwise I would tend to advise against buying. 

3) What are the rent vs. buy figures?
If you buy a house for €190k, you will pay about €10k a year in interest (repayments will be higher but will include some capital). 

How much is your rent at the moment? If you are renting a similar house for  less, then you should continue renting. 

Brendan


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## SarahMc (8 Sep 2007)

Agree with above.  In current climate there is no need to panic buy.  Rent, attack your debts, apply for affordable housing.


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## househelp (9 Sep 2007)

1) before mortgage it is:
Is it:
Car loan: 19
MBNA 9
UB 11
CC 4
Total 43k
*Yes the above is correct.* 
*we  have now borrowed the deposit of 23,400 from the cu at 300 pm over 10 yr,*



You are planning to add a further €190k mortgage to buy and renovate the house?* Yes*

It doesn't look right. If you have built up these debts over recent years, it looks as if your spending exceeds your income. *yes this is how it has come up to this level. we happy and knowingly but denyingly - went and borrowed.* 

Big car loans seem to be a feature of people with excessive borrowing. You should get by with a banger until you have cash to buy a better car. 
*the loan is about 19k, the value of the car is about 15k at present going by what i can see from carbuyersguide etc. this again is on finance. if we bought another, say 5k as we would use it quiet abit - we would have the 5k and the outstanding 4k as debt?*

2) You are buying a house for €160. You are spending €30k on it and it will go up in value from €190k to €240k. Are you sure? 
*the house is 156k and we will need about 50k to do it properly from the estimates and this is allowing for about 5k contigency. the house has been valued by the mortgage providers assesor at 240k and another 2 houses have sold in the area for about 230k.*

*we have been approved to borrow upto 70k extra and what we were thinking is to continue the extension and possibly use the remainder to kill off some of the debt? - is this nuts?*

*the mortgage is : 85% of 156k, 132,600 from esb @ 810 pm, deposit 23,400, via loan from cu.*


3) What are the rent vs. buy figures?
*we are living with partners parents, they had the extra space in the house and they offered it to us to help us out.*

*renting would work out at about 750 - 850 pm*


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## Marie (9 Sep 2007)

You obviously have some doubts so it might be wise to make a very full list of 'pros' and 'cons' before signing.

You have been living with your spouse and 7-year-old child with spouse's parents and want to have your own place.  That's fine.  It sounds as if the 240K appreciation (increase) you anticipate on the value of the property will come from the renovations you are borrowing to do and you mention you will 'continue the extension'.  Sounds as if you are taking on a building 'project'.  You are both employed so will have scant time or energy for this work.  As Brendan mentioned, the real cost of the property is the price - 130K - PLUS the interest which is 'front-loaded' so in the first years your repayments don't even touch the 130K.

A few more considerations.  You will find housekeeping, grocery and living expenses increase dramatically as a separate family unit.  You have utility standing-charges and lose the benefits of bulk-buying of food and groceries.  Are both your jobs stable and reliable for the next 10 years?  Repaying the mortgage and continuing work on the property depend on this.  Children are expensive and your 7-year-old will become a teenager in the next decade.  Do you need to consider additional educational expenses (schools seem to be forever arranging costly cultural/language exchanges to Europe these days!!!)

If having thought about all the implications you still feel enthusiastic that this is what you want and you will enjoy the challenge, follow your heart and go for it.  Enjoy and prosper!


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## Trustmeh (9 Sep 2007)

Wow, you are paying 750/month to rent your parents place? I must have taken this up wrong. I take it you are saying if you move out then renting will cost you 750/month. Is the situation you are in with living at home with mom and dad FORCING you to go find a house? Dont let it!

You need to go to MABS and get your spending under control otherwise you will borrow more money now and think you are ok to keep spending. The amounts you owe are not totally out of control just yet - but based on the fact that you have these debts BEFORE you have any mortgage - and based on the size of the debts versus the salary you are both on - then one speed bump and your bankrupt.

i would not recommend buying any house for you now - not in this climate - not with zero appreciation. I think you should check your valuation. You havent said where the house is - appoximatiely. the mortgage providers assesor is only an EA. an estate agent is going to give you any valuation you want to hear...no bother.  Do your own research. Have any houses been sold in this area at all in the last 4 months. I highly doubt it.  Any price for a house that was sold 6 months ago means nothing now.


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## arry (10 Sep 2007)

You need to be careful about the house market. If you agree a price now of say €180K it will more than likely take a couple of months before you have the keys. Then add on the number of months it will take to renovate the house. You could be talking 6 to 9 months and in that time the houses *could* have dropped by 10%. Add in the renovation costs and you could be in a situation of breaking even for all the sweat!

Also, having a number of loans which you are paying in parallel does not make sense. You would be better to clear as many loans as you can, consolidate the others and go rent. The housing market is deflating at the moment. No need to rush as the others say.

Arry


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