Renovation with Mortgage

Hi there,

First time buyer. Say I go for a mortgage for a house worth 100k, but the house requires a bit of work costing approximately 20k. I have a deposit of 15k, therefore I’ll be drawing down 85k for the house, leaving a total of 105k needed including the work I wish to get done.

- how do I gain access to the additional 20k for renovations?
- do the bank give me access to this before or after the draw down?
- Do I have to submit additional documentation for the additional 20k or is it considered part of the mortgage?

thank you.

Open to correction here...
As a FTB, you need a minimum of 10% deposit (for the first 220K, 20% of the balance above that). So if the house is valued by the bank at 100K, you need 90K.
I don't think they care how much you need for renovations, just their valuation report?
If they gave you more money than the house is worth, you would be in negative equity straight away!

Thanks for the reply.
With the condition of many houses on the Irish market at the moment, I would imagine this is a common occurrence for banks?

Depending on the work to be done and whether or not it will add value to the house you could approach the bank with the purchase price plus an estimate to do the works, once their valuer agrees the the finished house is then worth 120k then assuming income/deposit etc ok you could borrow whatever the max is in your case against the 120k value.

However if approved they will still just advance the percentage of the original house value to complete the purchase then you have to find the means of doing the work before you can draw down the extra money, fine if you can get a builder to do it with payment on completion, failing that you are probably looking at something like a short term loan.

Monbretia said:

Depending on the work to be done and whether or not it will add value to the house you could approach the bank with the purchase price plus an estimate to do the works, once their valuer agrees the the finished house is then worth 120k then assuming income/deposit etc ok you could borrow whatever the max is in your case against the 120k value.

However if approved they will still just advance the percentage of the original house value to complete the purchase then you have to find the means of doing the work before you can draw down the extra money, fine if you can get a builder to do it with payment on completion, failing that you are probably looking at something like a short term loan.

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Thank you for your response. I could be hard pushed to find a builder that would agree to such conditions. On the second point you made about a loan, it would be in the banks interest to lend the 20k over a shorter period of time (say 5-10 years) under separate conditions to the actual mortgage?

If you apply for the purchase plus the renovations and it works it's the cheapest way to do it, I doubt the bank will be looking to refuse it based on the chances of them earning more from you by personal loan route. If it works it works, if the additional work was furniture for example it wouldn't increase the value of the house at all so it really depends on the work and finished value. It's quite common people buying houses that need work done and it's usually done as a package deal with cost of renovations added to purchase price and hopefully final valuation exceeds the sum of the parts.

You could possibly draw it down in two chunks depending on the sort and value of work, cost of a valuation for a half way drawdown usually.

Do you have to do the work immediately? Is it not liveable at all, while you save hard for the 20k?

Boyd said:

Do you have to do the work immediately? Is it not liveable at all, while you save hard for the 20k?

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The work would be something that would ideally be carried out over a period of time. I would imagine it would be in the bank’s interest to lend the loan for renovations as opposed to the borrower seeking business elsewhere.

flag123 said:

The work would be something that would ideally be carried out over a period of time. I would imagine it would be in the bank’s interest to lend the loan for renovations as opposed to the borrower seeking business elsewhere.

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It wouldn't be in their interest to effectively hand over more than 100% of the purchase price up front. If you don't pay, they're guaranteed to lose a lot of money.

Banks will lend for purchase + renovations, but the renovation funding would likely only be paid in stages after works are completed. Depending on the interest rates available, it might be cheaper borrow the renovation funding over 5 years rather than pay for it over the life of the mortgage.

Leo said:

It wouldn't be in their interest to effectively hand over more than 100% of the purchase price up front. If you don't pay, they're guaranteed to lose a lot of money.

Banks will lend for purchase + renovations, but the renovation funding would likely only be paid in stages after works are completed. Depending on the interest rates available, it might be cheaper borrow the renovation funding over 5 years rather than pay for it over the life of the mortgage.

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Thank you for your response. From what I gather, the mortgage will only be 90% of the cost of the house FTB. Renovation loan will be loaned out under separate conditions under the purpose of ‘home improvements’. One bank i was looking at offers renovation loans, however for 20k they state to only allow the borrower to take the loan out for a maximum of 7 years.

- Would best procedure be to apply for the mortgage, purchase the house and then apply for the home improvement a few weeks later? Or should I state my intention of doing the house up when making my mortgage application?

thanks again