Mortgage for house that needs work

Shedite27

Hey guys,

Sorry if this has been covered elsewhere (I looked), but has anybody any recent experience of looking for mortgages for a house in need of work.

I have approx €50k saved for a deposit on a house, and would be reasonably confident of getting a mortgage for a house worth say €350k. Is there much of a difference in banks attitudes and requirements if you are looking for a mortgage for a house costing €350k versus looking for a house costing €250k in need of €100k work (so the same amount mortgage).

Thanks

coylemj

Yes there is. It all depends on whether the money being spent will add that or a greater value to the house. For example, if you bought a house for 250K in a rundown part of town and that was a fair price, that might be ok but if your plan was to spend 100k of borrowed money on it and the house was going to be worth less than 350K after the renovations then that would not be ok.

So it all depends on whether the money is worth investing. If the bank feels that it's not going to increase the value of the property by the amount of money being spent, they probably won't touch it, unless you can come up with the money for the renovations.

In most cases of buying and improving, the resale value of the house does not immediately increase by the amount being spent on it, unless you find a bargain house in a state of disrepair in a fashionable part of town, something that a lot of husband and wife architects are good at. That's not usually a problem for the person who buys the house because they see the renovation as an investment to be enjoyed perhaps over the next 20 years but the bank doesn't look that far ahead, they want to make sure that the loan to value (LTV) is still within acceptable limits immediately after the money has been spent, especially in the current environment.

Shedite27

Thanks for that.

So does that involves getting quotes for all the work, then bringing that to an auctioneer who would then give a value for the house post-renovations?

Sounds like a lot of costs (for a house you may not get anyway), and time (someone else could come in and buys the house for cash while you've all that going on).

coylemj

Shedite27 wrote: »

So does that involves getting quotes for all the work, then bringing that to an auctioneer who would then give a value for the house post-renovations?

No, the bank won't accept that, they will ask their own surveyor to crunch the numbers. Paper won't refuse ink, your auctioneer could say anything you ask him to so banks won't accept that type of speculative valuation.

In my case I was looking at a house that was in an ok state, it was in a very good area and was structurally sound but it needed some serious refurbishment inside (prehistoric kitchen) and the windows were in a bad state. The bank's surveyor said it would need €xx,000 spent to bring it up to a 'marketable' condition and they implied that I would need to raise that cash independent of the mortgage which of course I couldn't do so I had to walk away.

Shedite27

coylemj wrote: »

No, the bank won't accept that, they will ask their own surveyor to crunch the numbers. Paper won't refuse ink, your auctioneer could say anything you ask him to so banks won't accept that type of speculative valuation.

In my case I was looking at a house that was in an ok state, it was in a very good area and was structurally sound but it needed some serious refurbishment inside (prehistoric kitchen) and the windows were in a bad state. The bank's surveyor said it would need €xx,000 spent to bring it up to a 'marketable' condition and they implied that I would need to raise that cash independent of the mortgage which of course I couldn't do so I had to walk away.

Cheers for the anecdote - that's the sort of idea I was thinking about.