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There is a house that we are really keen on buying.

So, I went along to a mortgage advisor who did some quick checks and he came to the conclusion that the house was about £10k more than any mortgage company would be willing to lend to us.

Now I know that we could afford the repayments for our house since the repayments for the price of that house are roughly what our rent comes to now.

Is there anything we can do to either push up our affordability or find someone who is willing to lend a little bit more?

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    The bank is factoring other things that you obviously aren't. When renting you don't have a lot of the costs that come with home ownership such as insurance, taxes, maintenance, etc. – Kevin Jun 14 '12 at 19:07
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    @Kevin: If the landlord has structured it correctly, the rent is covering the cost of insurance, taxes and maintenance. Though if the mortgage is old, the mortgage payment for the landlord could be very low. – mhoran_psprep Jun 14 '12 at 21:12
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    Will you still be able to afford the payment when interest rates rise? – GS - Apologise to Monica Jun 14 '12 at 22:12
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    Fixed rate mortgages are common, but the typical fix length is 2-5 years, rather than the entire mortgage term. Longer fixes do exist but are rare. So it's likely that the question of a rate change will arise at some point. – GS - Apologise to Monica Jun 15 '12 at 4:38
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    @Telos true, they are not going to factor my confidence in their risk assessment. However, I will, otherwise I would just accept the banks first answer and walk away. – Mongus Pong Jun 15 '12 at 16:46
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Honestly I would look for a house you can afford and one that is below the maximum amount of what they are willing to lend you.

The reason is owning a house is not a quick loan that you can pay off in a year or two (unless you're rich then I would question why are you even bothering with a loan). This is a long term commitment; can you honestly say your job will provide the money for the mortgage, the upkeep and remodeling of the house (even if it's the perfect house you will want to change something, make the bathroom bigger, put in a pool table etc.. etc..), living expenses and any hiccups life throws at you?

Like most of us, that answer will be no. Always have money and supplies for that rainy day, for those lean days. For that mortgage payment. And if nothing happens you can always use the money to pay the mortgage off faster or take a vacation.

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    Yes good point. Although we can afford the rent, any house repairs etc.. just get passed on to our landlord. We would have to swallow these ourselves when owning. – Mongus Pong Jun 14 '12 at 15:01
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    @MongusPong Exactly. The costs of owning a home are far more than just the mortgage. Don't forget property tax, PMI if needed, association fees, homeowner's insurance, lawn/snow care if applicable, repairs, higher utilities, and more. I'd guess our mortgage is less than half of our total cost of home ownership. – Steven Jun 14 '12 at 16:37
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    @Victor Not everyone is healthy enough to perform physically-demanding home care. Not everyone has time (after working multiple jobs). Some neighborhoods have mandatory associations fees for lawn/snow care. And some people would rather spend time with their family than mowing the lawn. I said "if applicable" for a reason: please be civil and don't assume laziness. – Steven Jun 15 '12 at 0:21
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    @Victor - or, I could pay the $50 to have my lawn cut, and hop on my computer and earn about $150 in the same time. The fact is, though, nobody wants to spend every waking hour working. At some point, free time becomes more valuable than a few extra dollars. This does not make people lazy, or entitled, or financially incompetent. It makes them human. – Matthew King Jun 15 '12 at 1:21
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    @Victor, actually, your original point was just complaining about "lazy" people paying to have menial labor done, rather than doing it themselves. You only started shifting the goalposts to "living within your means" once Steven and myself offered up a number of examples where paying for menial labor to be performed makes sense. Either way, neither your comments nor my comments are constructive/useful at this point, so should probably be deleted :) Last post for me. – Matthew King Jun 15 '12 at 2:20
10
  • Get a private loan from friend/family
  • If possible, borrow the funds from your retirement account (in US, this is a low cost way, not sure how your retirement plans work.)
  • Find someone to rent a room in the new house, if you bring the lender a signed lease, they should count a portion of it as income, a few hundred £/mo should cover the 10K you are short.
  • Stop spending. If you are truly this close, stop all discretionary spending. No cable TV, no eating out, I mean go "rice and beans" to save that up.
  • As OrionDarkwood suggested in comment - Talk seller down by £10K, I don't know if you are looking at a £100K house or £200K, so £10K may not be that high a percent.
  • Ask the seller to finance the extra. Sometimes the bank will have a limit, but still allow the seller to finance a second note after the mortgage.
  • Ask the realtor (real estate broker) to chip in. In the US, they can take 6%. When a deal is very close, they will often give up 2% to close the deal and move on rather than lose the sale.
  • Approach your current boss(es) and discuss a raise.
  • Earn extra money. A friend here documented his second job in Deliver Away Debt. He took on a second job delivering pizza on Friday and Saturday nights. (The point is not about pizza, it's about finding clever ways to raise money. £10k might take 1000 hours to earn, maybe less.)
  • Combine elements above. A small raise, a few months of second job, etc.

You might also want to talk directly to a bank. If your credit report is clean, they may have some discretion in making the loan.

Note - the 'normal' fully qualified loan has two thresholds, 28% (of monthly income) for housing costs, 36% for all debt servicing. A personal, disclosed loan from a friend/family which is not secured against the house, would count as part of the other debt, as would a credit card. While I don't recommend using a credit card for this purpose, the debt fits in that 28-36 gap.

As Kevin points out below, not all paths are equally advisable. Nor are rules of thumb always true. Not having the OP's full details, income, assets, price of house, etc, this is just a list of things to consider. The use of a 401(k) loan in the US can be a great idea for some, bad mistake for others. This format doesn't make it easy to go into great detail, and I'm sure the 401(k) loan issue has been asked and answered in other questions. With respect to Kevin, if he wrote 'usually', I'd agree, but never say 'never.'

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    I would also add, not sure how things work in the UK (I am assuming this due to the use of pounds as a currency). But have you tried to see if you can talk the seller down in price? – OrionDarkwood Jun 14 '12 at 14:34
  • With regard to getting a private loan, that does not help (at least in the US) because the loan must be disclosed on the mortgage application, and the lender will definitely take that into account in deciding how much they are willing to loan on the house. After all, the private loan repayments also affect the cash flow of the borrower. Also, it is kind of hard to lease a room in the new house before purchasing it! Finally, aren't lbs (pounds avoirdupois) different from the £ pounds sterling that the OP mentions? – Dilip Sarwate Jun 14 '12 at 14:39
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    @DilipSarwate He was talking about the tenant's weight. :D – Chelonian Jun 14 '12 at 14:44
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    Ok, so even though it sounds like the same word, lbs is not the abbreviation for pounds sterling? Thanks for the funny lesson, I wont make that mistake again. – JTP - Apologise to Monica Jun 14 '12 at 21:42
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    Ha! There's a process of brainstorming in which one offers many ideas regardless of viability. You should see the ones I considered and dismissed. Respectfully, absolutes are rarely true. NEVER? No discussion of how much that friend needs, why he needs it, or how he took a bullet for you (literally or figuratively) years ago? Some take a retirement loan, and default after a job loss. Others use it to buy the house, paying less in the mortgage than the rent was, take in a roommate, and pay the loan off in under a year. One size does not fit all. – JTP - Apologise to Monica Jun 18 '12 at 17:09
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Save up a bigger downpayment.

The lender's requirement is going to be based on how much you finance, not the price of the house.

3

If you can't afford it don't buy it, the next perfect house is just around the corner. The more time you spend researching and looking at houses, the increased chance you will find the perfect house you can afford.

Also, here in Australia, we (the banks as well) factor in an interest rate rise of 2% above current rates to see if repayments can still be afforded at this increased rate.

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You can ask the buyer to lower the price by the amount you are approved for and negation transferring the amount to him via a escrow..

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