Preparing for mortgage process

[tvman]

Myself and my partner plan on buying a house together over the next 2/3 years - depending on market conditions. We both work. I'm in a public service job earning around €55K and he's in a private sector job earning around €40K (secure). I have some debts from a failed business venture but I'm rapidly paying them down (at c. €1200 per month). The current balance is c. €35K. The debts will be cleared in 3.5years.
However we would, if possible, like to be in a position to buy in probably 3 years. This would mean paying the maximum possible level down over the next 2 years, then refinancing the remainder of c. 10K over 5 more years to minimise repayments (which would be c. 200 p/m) and saving as much as possible for the 12 months - we estimate we could have savings of c. 30/35K 3 years from now.
So my question is how would the banks be likely to view the remaining €10K in personal debt, it wouldn't have a significant impact on our repayment capacity as we would intend to borrow no more that €300/320K, which would be very comfortably covered from our net incomes.
I realise the obvious answer is to pay down all the debt first and then begin saving but this would delay the house purchase for a year for no real benefit.

Your thoughts appreciated.

tvman

 

[kildon]

banks don't want to pay off another lenders debts...defn not for first time buyers

pay off the debt, then save for a deposit (you'll need at least 10%) plus usual expenses in buying a property, legal, estage agents etc.

 

[miser]

Assuming:
- no changes in salary
- an effective tax rate of 35%
- mortgage of 320k over 30 years at 5.5%
- personal loan of 10k over 5 years at 10%

Your mortgage repayments will be 1817 euro/mth
Your personal loan repayments will be 212 euro/mth

With the personal loan, that's 37% of your Net Take Home going on debt every month.
Without, it's 35%.

So not a huge difference, unless the banks you're applying to have a threshold of 35% net take home pay.

The bank will obviously have to consider how much of a deposit you have, what kind of house you need etc in terms of whether to approve your mortgage.

One other thing- start filing your bank statements, P60's, savings records etc. so that you have all your documentation ready when you go to apply in 2-3 years time. Requesting duplicate documentation from banks for mortgage applications takes time, and is expensive.

Best of luck