Personal loan for deposit

[tiger]

It was recently suggested to me (the person who suggested may read this ) that it could be an idea to take out a personal loan for part of a house deposit.

Im looking at the RAMS 90% lo-doc loan and apparently the deposit can come from any source.

I'd like to buy as soon as possible (have been wanting to for a year) but still a little short on deposit and the personal loan would need to be around 6k or so.

Is this a financially stupid thing to do or is it a good way to get into the property market sooner rather than later?

 

[FelixL]

I just did that with my soon-to-be settled IP, I have the deposit and stamp duty in cash, but still opted to get a personal loan. Given the uncertain market condition these days, I feel more comfortable having the extra bit of cash around. Besides the loan repayment after tax deduction is not much higher than interest earned sitting the cash in my ppor offset acct.

However, if I didn't have the the cash already, I would probably wait, because essentially thats like spending my next 5 years of savings which I haven't earned yet!

 

[tiger]

This is for a first home, not an IP so it would be not tax deductible

 

[DavidMc]

I wouldn't recommend it.

If you can't save for a deposit, how can you service the loan?

Prove to yourself you can BY saving a deposit.

 

[alexlee]

I agree. Using a personal loan for a deposit is just increasing your leverage, and remember that personal loans often have a shorter loan term. What if you can't refinance by the time the personal loan is due? This is pretty much what fried Centro, etc.
Alex

 

[tiger]

Someone else suggested credit card, or increasing the card limit. Since there are no early repayment penalties, could this be the better option?

We can save for a deposit, its just a matter of time.

 

[Programmer]

Tiger, I'd recommend you listen to the advice already given.

 

[alexlee]

Someone else suggested credit card, or increasing the card limit. Since there are no early repayment penalties, could this be the better option?

We can save for a deposit, its just a matter of time.

You're still talking about piling on more debt, and high interest debt at that.

Why so desperate to get into the market? At this point, it doesn't exactly look like we'll get a boom soon.
Alex

 

[DavidMc]

We can save for a deposit, its just a matter of time.

If you could, why haven't you already? Have you only started working?

Either way, you still need to prove you can. It's like saying 'I can give up smoking, if I wanted to'. Know what I mean?

Figure out what the property would cost you to hold and use that plus 20% as a monthly savings target. You'll get the double benefit of confidence that you can manage the cashflow and you'll pay less interest.

As Alex said, I don't think a boom is just around the corner. If anything you could be better off by taking out 6-12 months to save like a man possessed!

 

[DavidMc]

Otherwise stuff like this can easily happen... http://www.somersoft.com/forums/showpost.php?p=395936&postcount=63

 

[Minxdamanx]

Tiger

Wiser heads than mine have given you advice here.

When we moved in to our PPOR (24 years ago) we struggled for 2 years to get out of the mire we'd put ourselves in. Borrowed too much, had NO money put aside ($20 in bank the day we moved in), a personal loan etc. Our first mortgage payment was higher than our little deposit book (they gave you those back in the old days) and then the steady increase to 17% interest rates.

We literally lived on meals with mum and dad and vegemite sandwiches for lunch every day. Yeah I know it sounds like a Monty Python joke, but believe me it wasn't funny. Please get yourself a good deposit the old fashioned way - get a part time job if you have to - don't take an easier way out - because mostly it isn't easy!

Oh dear - I sound like my mother

 

[THEHEATH]

I did this. The big advantage to me was that it enabled me to move from a loan that was 1% odd more expensive to a cheaper loan. Imagine the interest that 1% could equate to over the years. I paid the personal loan off within 7-8 months.

I think it depends a lot on how much you earn and how big the personal loan is that you are talking about.

Edit: Just read you are only talking about a 6k loan. If you are earning a decent wage and can pay an extra $150-200 a week to pay off the personal loan then go for it.

 

[tiger]

Well I have been given this advice by a very experienced broker. I'm jumping into anything as I can see the troubles it COULD lead to.

Why so desperate Alex? Because I need a house to live in, and have done for a long time now.

Yes I am talking a relatively small amount - under $10,000. It will also mean being able to get the better loan so if we can service the debt and have the high interest debt paid off quickly, surely we'd be better off in the long run.

 

[Simon]

You asked for advice. Less emotive heads have given you their opinions - home ownership is an emotional issue

At the end of the day it is your call. That you asked a bunch of strangers for advice is no defence should things turn to custard. Plus we don't know you well. Are you a disciplined saver with a strong disposable income or are you a spender on job probation who cannot resist the latest shiny thing?

You got to do your sums and work out what's best for you.

But the general consensus is that the market isn't going anywhere at the moment - in fact locally I believe our market is falling slightly so waiting could save money upfront. Rising prices is probably not a reason to get into anything fast as it has been in earlier years and no doubt will be again down the track.

The choice and responsibility is yours alone

I really wish you all the best and hope it works out for you - but if you view this as a long term proposition then history tells us that you will be OK - as long as you keep making your repayments.

 

[Property Meister]

Why so desperate Alex? Because I need a house to live in, and have done for a long time now.

just remember need and want are 2 different things,

credit card is probably about the worst suggestion I could think of!!

seriously borrow from family, friends, whatever, but stay away from personal loans or credit cards..

 

[alexlee]

seriously borrow from family, friends, whatever, but stay away from personal loans or credit cards..

Personally, I think it would be better to go for personal loans and credit cards instead of borrowing from family and friends. But that's just me.
Alex

 

[Aimjoy]

....... but still a little short on deposit and the personal loan would need to be around 6k or so.

Is this a financially stupid thing to do or is it a good way to get into the property market sooner rather than later?

Tiger,

I'd agree with the others except that we are talking $6K here - not $60K! To me its a no brainer.....so long as you can afford it. Remember also that you could possibly balance transfer (BT) the PL off to a 6.9% for life of the BT (like CitiBank is currently offering) - which is prolly cheaper than the home loan rate you're about to pay.

You've been lurking here for a while.....and almost done it a number of times. My suggestion would be - just jump in and do it - we're talking petty cash here. So what if the market is flat or slightly down for a bit....if its a PPOR its all about security and a sense of achievement and well-being.
Just make sure you can afford it first.

Cheers,
Aimjoy

 

[+Mpire_Builder+]

though it may seem a solution to a short term problem it is not doing you any favours and i think you should look at the long term pic, and the loan deposit wont look favourable when going for finance..
i suggest bite the bullet and get savingfor that deposit.
Dont be hasty and good luck

Dave

 

[Kristine..]

the loan deposit wont look favourable when going for finance..Dave

Hello Dave

I'm interested in your comment that lenders would not look favourably on an application where the deposit was not fully saved / was borrowed

Care to elaborate on this further?

I haven't put a bean of 'real money' into any purchase for the last - oh, 14 years, every dollar of every purchase has been borrowed. Have I missed something? In my experience the lenders have lined up to lend me rather large amounts of money - the last purchase required nearly $X00K and came in at about 107% of the purchase price.

From what tiger wrote he/she is looking at a 90%LVR deal, hardly earth shattering. If some / all of the 10% gap plus costs less first home owner's incentives is borrowed why would that cause a lender to refuse the loan?

Hoping you can shed some light on the subject

Cheers
Kristine

 

[ffc1883_1996]

Is this a financially stupid thing to do or is it a good way to get into the property market sooner rather than later?

I think it's a perfectly good idea - IF you can afford it.

In ten years the personal loan, which has long since been paid off, will seem a totally insignificant amount compared to the value of your investment.

Just make sure you buy well.