Financing an unfinished house

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brokeagain

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Hi,

What type of mortgage do I apply for to puchase an unfinished house?

There are so many unfinished houses on the market at the moment. I would like to purchase one of there but I am unsure how to go about the finance part.

If the builder has ran out of money and cannot afford to finish, can I apply for a mortgage cover cost of finishing?

For example: House is advertised as 250k but there are no floors, tiling, kitchen and no landcaping. Can I apply for a mortgage of 280 to cover cost of completion??
 
I am practically sure you can't get 280K mortgage for a 250K house! In fact, you aren't going to get 250K mortgage either, the days of 100% mortgages are long gone. You'll need a deposit - 25K at least, preferably more, plus more money for finishing the house, though you may be able to borrow some of this, but not as a mortgage, so at higher interest rates (for a personal or CU loan) and over a much shorter period.

Be careful you don't end up on a ghost estate, though not sure the bank would lend for it.
 
Greta said:
I am practically sure you can't get 280K mortgage for a 250K house! In fact, you aren't going to get 250K mortgage either, the days of 100% mortgages are long gone. You'll need a deposit - 25K at least, preferably more, plus more money for finishing the house, though you may be able to borrow some of this, but not as a mortgage, so at higher interest rates (for a personal or CU loan) and over a much shorter period.

Be careful you don't end up on a ghost estate, though not sure the bank would lend for it.
Click to expand...

Hi Greta,
Thanks for your reply. I prob need to make my first post clearer. I have a deposit of 20k plus savings to cover furniture, legal expenses and valuations and the like.

I plan to offer less than asking price anyway.

The house is on a 1/2 acre site and not in an estate.

I need the cost of the house less the deposit plus approx 30K to finish.

I'm just wondering if anyone has gone down this route before and how they financed the finish.

I'm not keen on getting a personal loan to complete the house as this would lead to an extra repayment every month. I currently have no loans or CC debt and plan to have just the mortgage repayment going out every month.

Should a valuation be of the house completely finished or is it of the current state of the house?

The house is nearly complete. It is tiled but has no floor covering, kitchen units or fireplace.

How do people normally finance builders finishes??
 
Back in the days of mortgage lending the way to approach that would have been to submit an estimate with the mortgage application for the work to be done and the valuer would have put a final finished value on the house. Then you would have been limited to drawing down 90% of purchase price now and draw the balance either on completion of the work or in stages if necessary as it was done, this ensured the bank never had more than 90% exposure to the value of the property. For example, pp 200k, work needed 100k, total finished value 300k, total mtg applied for 270k (90% of final value), initial drawdown 180k (90% existing value) plus your deposit purchases house. Do the work and drawdown final 90k in stages if necessary.

However!!!! don't know if this works anymore, this is a very basic example and in previous days the value was likely to be more than the sum of pp and works to be done, as this is unlikely to be the case now banks probably dont want to touch cases like this.
 
It should still work, as the poster outlined above. Its not too different from drawing down a mortgage for the construction of a one-off build.

The bank will finance the purchase of the shell and then will make the remaining completion payments in stages. A valuer or surveyor may be required for each of the stages just to assure the bank that the money is being spent as it was intended.
 
Thanks wbbs and lobby.

So basically I should get a builder/contractor in sto give me a quote on the cost of finishing the house and then I should go to the bank for a self build type mortgage?

I think I should go to the bank and see what they say.
 
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