Buying House from Parents. Deposit Needed Up Front. Gift from Parent Once Sale is Completed to Cover Deposit.?
My parents are divorced; the marital home has been up for sale for 5 years. It was originally marketed at £200k and was last marketed at £175k at the turn of the year. My parents have instructed the estate agents that they do not need them to act and I am looking to buy the house (with my fiancé) for £160k which has been agreed by both of my parents. The house is not being purchased under the market rate as another estate agent had done a valuation of around £160k last year. Both parents are not purchasing another property from the sale of this house so there is no ongoing chain.
We have got a mortgage in principle with Nationwide on the basis of 15% deposit (£24k) leaving a mortgage of £136k. To make this a reality my father is going to gift me £35k from the proceeds of the sale that he receives. This is to cover the deposit and leave us with some extra to do the house up.
The problem is that although we are guaranteed to have the £35k gifted back to us, we don’t have the deposit up front. We can stretch to about £10k in savings so we need £14,000 to make up the rest of the deposit. Can anyone advise us of a way that we can get around the problem of not having the money up front? We have considered borrowing £14k from a friend or family member so that we have the full deposit on the completion date. My father will receive the sale proceeds on that date and then gift the £35k to me and I can then repay the £14k to whoever we borrowed it off.
The problem that I see with this method is that we will need to provide Nationwide with proof of funds to pay for the deposit in order to finalise the mortgage. Maybe borrowing the £14k earlier than needed for the completion date and providing a statement showing the £24k in the bank account would help to get around this? However, we may struggle in finding someone to lend the £14k and need to look into who could help us. Also, I’m not sure how far they would look beyond the £24k to see where the money has come from. If it has been loaned to us by a friend or family I’m sure this wouldn’t be satisfactory for them to finalise the mortgage with us.
I was advised by a manager in a bank that I could take a personal loan of £14k and use it for the deposit, get the money back from my father and then cancel the loan within the 14 day cooling off period. I am aware that he probably shouldn’t have advised me this as there is nothing in it for the bank. I don’t see that this option will work because I believe that we will need to show proof of funds for the mortgage to be finalised and I may not be able to get the loan, show proof of funds, reach the completion date and get the gift back from my father within the 14 day cooling off period. Additionally, I know that we strictly shouldn’t take out a loan to finance the deposit and this may show up on Nationwides credit checks and searches (depending on when we applied for and received the loan). The manager said to get the completion date agreed and then arrange the loan (not telling them of the impending mortgage). I just don’t think that this is a realistic option as I think we will need to show proof of funds up front.
Another thought relates to an internal transaction from the solicitors on the date of completion. We are using the same firm of solicitors for the purchase as my father is using for the sale (although we are using different offices). Would it be possible for my dad to sign a letter saying that he is gifting £24k from the sale proceeds and Nationwide to accept this on the basis that the solicitors can do an internal transaction where my dad receives his share of the proceeds and gifts back the £24k which is then used to cover the deposit or whether they just pay him his share minus the £24k and the balance in their account is used as our deposit? He can then gift the remaining £11k at a later date. My uncle suggested that this could happen as the sale and purchase are being done from within the same company. I’m not sure if it is something that can happen and if it can, I’m not sure if Nationwide will be happy to finalise the mortgage without proof of funds (even though we are guaranteed to received the £35k back once the mortgage goes through.)
It seems to be a very frustrating situation for us with not having the funds up front yet they are guaranteed to be received once the sale has gone through. A catch 22 scenario. We are simply trying to buy a house on the basis of money for the deposit being gifted back to us. However, the methods of getting the funds up front are making me feel uneasy and making me feel as if we are trying to get away with something. Ultimately we may not be able to get the mortgage if we can not satisfy the lender.
Advice is needed on this situation. Your comments will be most helpful to clarify matters or to discount any methods we have considered. Thank you.