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Cost of renovations built into mortgage application?

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  • 29-02-2020 8:12pm
    #1
    Thomthumb1
    Registered Users Posts: 4 ✭


    The story:
    After years of believing that we were stuck in our current 3-bed semi, we are daring to dream that we could get our dream home. It's a small house that needs a lot of work and previous interested parties have had trouble securing a mortgage (loan to value issue).
    Existing mortgage- 220K
    Value of our house- 250K
    New house-200K

    We are using saving +equity for the deposit. Mortgage repayments will stay the same. We do not have the money need to renovate the house. We are currently saving €900 a month so home improvement loan repayment should not be a problem.
    Questions:
    1. Should we be honest with the bank? Will admitting that ruin our chances of getting the mortgage?
    2. if not, Will the bank allow us to borrow the renovations cost (30K) with our new mortgage? Should we ask?
    3. Is is safer to just borrow money from family member to show we have the funds (this would be a last last resort).
    I am so grateful to anyone who has taken the time to read this far and would be delighted if anyone has any thoughts, suggestions or similar experiences like' this- its all totally new to us and I really don't want to make a mess of it.
    Thanks,
    T


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    #2
    Dolbhad
    Registered Users Posts: 782 ✭✭✭Dolbhad


    Thomthumb1 wrote: »
    The story:
    After years of believing that we were stuck in our current 3-bed semi, we are daring to dream that we could get our dream home. It's a small house that needs a lot of work and previous interested parties have had trouble securing a mortgage (loan to value issue).
    Existing mortgage- 220K
    Value of our house- 250K
    New house-200K

    We are using saving +equity for the deposit. Mortgage repayments will stay the same. We do not have the money need to renovate the house. We are currently saving €900 a month so home improvement loan repayment should not be a problem.
    Questions:
    1. Should we be honest with the bank? Will admitting that ruin our chances of getting the mortgage?
    2. if not, Will the bank allow us to borrow the renovations cost (30K) with our new mortgage? Should we ask?
    3. Is is safer to just borrow money from family member to show we have the funds (this would be a last last resort).
    I am so grateful to anyone who has taken the time to read this far and would be delighted if anyone has any thoughts, suggestions or similar experiences like' this- its all totally new to us and I really don't want to make a mess of it.
    Thanks,
    T

    You can borrow funds to purchase the house and have drawdown payments afterwards to do work to the house.

    So say you sell your current house for 250k and have 30k towards the new house. The bank might say we will give you 180k to buy the house and 50k to do works to the house. You will use 20k for deposit on the purchase of house and use the 10k to start the works.

    There are a few things to be noted. The bank will insist on the house being worth a certain valuation once works are done and will hold back funds from the mortgage until it’s valued at that (ie may hold back 10k until the end).

    The bank will also require you to use your funds first for the works. So in the example above you would use the 10k you’ve left to do some works. Then your engineer will submit the value of works done and you draw down 10k off bank.

    The amount the bank will lend will depend on the central banks rules and the potential value of house afterwards. You may have to involve an engineer to sign off on works for bank even if the works are of a renovation type only and don’t involve planning.

    Sometimes if the house is in a really bad state the valuer will flag it to the bank so they will have an idea works may need to be carried out.

    I’ve only come across this with issues with the roof would be obvious. My brother had bought a house built in 1940s back in 2009 and valuer had said roof would need to be replaced in 2-3 years so he had to show he had the funds to do the roof.

    I’d have a word with a bank first and be honest on the plans and see their options. If they said no than try another bank. If they all said no, then you go try borrow the money off family.


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    #3
    Thomthumb1
    Registered Users Posts: 4 ✭Thomthumb1


    Thanks for that Dolbhad. Funny that you mention the roof- that's what the problem was with the previous buyer when it came to getting a mortgage! It's early days yet in the whole process- had a builder friend look at it and he thought it all looked decent, but may need to get an engineer involved before we even think about going further.
    Thanks for your advice- great suggestion.


  • Options
    #4
    Dolbhad
    Registered Users Posts: 782 ✭✭✭Dolbhad


    Thomthumb1 wrote: »
    Thanks for that Dolbhad. Funny that you mention the roof- that's what the problem was with the previous buyer when it came to getting a mortgage! It's early days yet in the whole process- had a builder friend look at it and he thought it all looked decent, but may need to get an engineer involved before we even think about going further.
    Thanks for your advice- great suggestion.

    If your really serious about the house I would get an engineer to look at it as may impact what your willing to pay for the house.

    I think the roof is an obvious thing a valuer can spot and wouldn’t need to be an engineer to see if there is an issue. My brother didn’t look for the money from the bank for the roof (he found it difficult enough to get a mortgage as a sole applicant in 2009 as crash was starting to hit) as he didn’t want to rock the boat. He had to submit a quote for works to the roof and show he had the savings after the deposit to do the roof (which he had) and the bank were happy to proceed.

    Although for all they know he might not have gone about fixing the roof after drawdown of mortgage.

    Best of luck with the house. Hope it works out.


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    #5
    SuperO'B
    Registered Users Posts: 127 ✭✭SuperO'B


    I'm resurrecting this thread as I have a similar query. Hoping someone can provide me advice on it as we are currently bidding. Below are the numbers associated:

    House price = €415K

    Equity from sale of house = €120K

    Cost of renovations to new house = €150K


    I have been working out my calculations based on a mortgage amount for the house purchase and then a home improvement loan of €100K + savings (€20K) + leftover equity after the deposit(€30k).

    My intent was to then re-mortgage after the works were completed to wipe out the home improvement loan and make the reapyments a little easier ( €2450/month to €1750/month).

    What I am hoping for help on is whether the bank would actually give the mortgage amount for the full complete value of the house. theoretically €415K + €150K or thereabouts, and what would be needed to secure something like this?

    From reading the above advice it seems it would be a phased approach of initial release to purchase the house, followed by phased release of the remaining following invoice/engineer confirmation.I'm just not even sure if this is the done thing.

    Really grateful if anyone can shed some light on this for me. Thanks



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