Saving up for a deposit can be a hard and long process, which many people may struggle with at some point in their lifetime.
One thing you might be considering is whether you can get a loan to help you pay for your deposit. But, is this actually possible?
In this blog, we take a deep dive into this question and provide some useful insights...
Using a loan for a mortgage deposit
Put simply it is possible to use a loan for this purpose, but it’s not always advisable in every situation.
There’s some scenarios where you might be able to adopt this method, these are:
1. A deposit for your first home –
One of the biggest challenges for first time buyers can be saving up for a deposit, particularly if they’re renting another property at the same time.
In this situation, it might be possible to use a credit card or personal loan to help, but it’s not always recommended.
Adopting this method means you will be taking out further debt, in order to pay for another bigger form of debt. This can signal to lenders that a mortgage may be unaffordable for you, and therefore could be risky for both you and the mortgage provider.
Many mortgage providers will be reluctant to lend in this situation at all, as lending to a first time buyer can be enough of a risk in itself. Therefore, you may find it very difficult to achieve in the first place, but that’s not to say it’s impossible.
If you are able to borrow under this method, the rules and criteria are likely to be stringent and you might not be able to secure the best mortgage deals as a result.
Due to this, it may be more beneficial to look at other ways to help you get a deposit together including gifted deposits, help to buy ISAs and lifetime ISAs. However it’s important to note that help to buy is ending this month.
It could even be worth looking at alternative ways to get on the property ladder if you’re really struggling. Some of these options could include shared ownership or right to buy.
2. Deposit for a second property –
If you’re a landlord or investor, you may be interested in getting another property to increase your portfolio and boost your rental yields.
However, if you already have multiple properties which have tied up a lot of your money, you may have minimal funds available to put a deposit down on a new house.
In this case, an unsecured or secured loan can be taken out to assist with the deposit, allowing you to expand your business further.
Unsecured loans do not take an asset, such as a property, as security. With a secured loan however, a house will be taken as security against the loan. But, the great news is that if you’re a landlord you can choose to secure it either against your residential home or one of your buy to let properties.
It’s important to remember that it’s always worth putting some of your own money down if you can, so that you have some equity in the property.
Summary
To sum up, a loan can be used to help you put down a deposit on a property. However, if you’re a first time buyer it’s best to avoid this and look at other ways you can save up money for a deposit. Landlords and investors on the other hand may have a much better experience using a loan to help with a deposit for a second property.
Loans are secured against property - Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
