You love challenges and are excited about the idea of buying that home that fits all your needs, but needs a comprehensive renovation. You’re on point, you need to know how to get a purchase and renovation mortgage.
What is a purchase and renovation mortgage?
The purchase and renovation mortgage is a type of financing that allows you to buy a property and carry out renovations on it with a single loan. This type of mortgage usually offers a higher amount than a traditional mortgage to buy a property, as it includes the cost of the renovations that are going to be executed. In this post we will talk about purchase and renovation mortgages, how they work, what the loan criteria are and their advantages and disadvantages.
How the purchase and renovation mortgage works
The purchase and renovation mortgage works in the same way as a traditional mortgage, with the difference that it includes an additional amount to cover the cost of the renovations that are going to be made to the property. To obtain a purchase and renovation mortgage, you must first make an application to a financial institution. Banks usually finance 80% of the purchase value of the home. Something that we must not forget and also keep in mind that, apart from the remaining 20%, it is important to have previously saved 10% more for possible unforeseen events.
Criteria
The criteria that a financial institution usually takes into account when granting a purchase and renovation mortgage may include:
- Your financial and employment situation: Your ability to pay, your income level, and your monthly expenses will be assessed to determine if you can meet the monthly loan payments. The bank will also take into account your job stability and credit history.
- The value of the property you want to buy: The value of the property you want to buy will be evaluated to determine if it is adequate in relation to the amount of the loan you are requesting.
- The cost of the complete renovation: The bank will check the cost of the comprehensive renovation you want to carry out in the property to determine if you can meet the total amount of the loan. This amount is usually limited to 30% of the total capital of the mortgage loan.
- The conditions of the loan: The financial institution will evaluate the interest and the repayment period of the loan it offers to determine if it is viable taking into account your financial situation and the value of the property you want to buy.
Steps to follow
It is important to have a good payment capacity and that you choose a property that has an adequate value in terms of the amount of the loan you are applying for, in order to have a higher chance of obtaining the mortgage. It is also essential to be able to count on a professional to help you justify the costs of the renovation and the revaluation of your home after it. Once the mortgage is approved, a contract will be signed setting out the terms of the loan. The total amount of the loan, the interest and the repayment term will also be included. You can then start buying the property. It is then that the agreed comprehensive reform can begin. Works that will take you one step closer to having the house of your dreams. During the renovation process, it is common for the bank to carry out additional appraisals to check the progress of the work and verify that it has been completed. In general, the purchase and renovation mortgage allows you to finance the purchase of a property and the renovations you want to carry out on it with a single loan, which saves you from having to look for additional financing for the works. However, it is important to note that the total amount of the loan will be higher than in a traditional mortgage, as it includes the cost of renovations. It is important to take this factor into account when calculating your ability to pay.
Advantages of the purchase and renovation mortgage
- As we have mentioned, the purchase and renovation mortgage allows you to finance the purchase of a property and the comprehensive renovation in a single loan. The interest we would get for a mortgage will always be lower than that offered for a personal loan.
- It saves you from having to look for additional financing for renovations.
- You can tailor the property you buy to your needs and tastes, without having to invest a large amount of money in one go.
- You can enjoy a property that fits your lifestyle and is in good condition, which can increase its value in the future.
- It allows you to repay the mortgage loan and the renovations made to the property with what you get from renting or selling it in the future.
Disadvantages of the purchase and renovation mortgage
- The total amount of the loan will be higher than in a traditional mortgage, as it includes the cost of renovations. This can make it more difficult to meet monthly loan payments if you have limited ability to repay.
- It can be difficult to know exactly how much money you will need to cover the cost of the comprehensive renovation, because this will depend on the type and magnitude of the renovation. This can cause the total loan amount to be higher than expected, which can increase your difficulties in meeting monthly payments.
- If you do not plan the comprehensive renovation well or do not choose a reliable company to carry it out, it is possible that the budget will get out of control and the cost of the renovation will be higher than expected. Hence the importance of working with professionals who offer you fixed costs and deadlines before starting the renovation. This can cause the total loan amount to be higher than expected, which can increase your financial burden.
As we have seen, the purchase and renovation mortgage can be a good option if you have a good payment capacity and if you plan well the renovations you want to carry out on the property you buy. That is why it is important to have a renovation study from the beginning, even before contacting the bank, to help you in the process and guide you through all the steps, as their work will be vital for the success of the operation. If you want us to be that travel companion, we will be happy to do so. Write to us whenever you want through our contact section.
