There are many properties on the market that can make great homes but may be in dire need of renovation. If you have found a property like this, whether for yourself or to sell for profit, chances are you will need to acquire financing to complete the project.
Many high-street lenders will not finance renovations or projects on derelict homes but will only offer mortgages habitable properties. If your property is in need of renovation, conversion, or a complete overhaul in order for it to be habitable, acquiring financing from a specialised lender will be required to finish the project.
Financing a Home Remodel for Beginners
The property’s condition will dictate how lenders handle financing a renovation project. For example, if the property is run-down but considered habitable, lenders will offer 80 to 95 percent of the property’s total value. The 5 to 20 percent is held for retention pending the completion of necessary repairs.
Before approving any financing, however, lenders will require the property to be surveyed by a professional in order to access the amount of work that needs to be completed. Additionally, re-inspection and charged fees may need to take place in order to release any remaining funds. Some of the items that will be accessed include damp-proofing, roofing, rewiring, and HVAC repairs.
Funding for properties that are considered to be derelict is handled in a much different fashion. A derelict property will often require a large amount of renovation, which may include a complete conversion. Financing these projects is much more limited and property owners may need to seek the assistance of very specialised lenders.
Generally, these specialty lenders will extend 60 to 90 percent of the property’s value based on its current condition and may offer additional funds released during different stages of the conversion project. The release of these additional funds will often be approved by inspecting and re-inspecting the progress of the property and project.
Starting and continuing renovation and conversion work is often very expensive – property owners often fund the project between financing releases through their own savings, credit, and loans just to keep the project on track. An alternative option to this method is to utilize the services of a lender who is will to offer stage payment advances.
If the renovation is being done on a commercial property, some high-street banks may be willing to help fund the project but will only advance limited funds, usually up to 66 percent. Once the project is complete, it is possible to have the property remortgaged for up to 90 percent of the property’s market value. Re-financing in this way can help release funds to pay back other loans.
Renovation Financing Options
One of the biggest questions property owners have when it comes to renovation financing is how much money they can borrow. The amount that lenders will extend will be based upon a simple calculation of figures, including owners total or joint income, disposable income and credit history, among other things.
Individuals who are self-employed may have a harder time securing financing – because of this, it may be beneficial to work with a broker in order to secure financing. Additionally, owners with an adverse credit history should work with a financing advisor in order to find a lender who will be willing to work with the owner’s current financial situation.
Securing a Property Deposit
The majority of renovations will use a mortgage advances that offers between 66 and 90 percent of the property’s market value. Because of this, property owners may be required to fund the balance of the property’s purchase cost, purchase price, and any survey or design fees.
When this is added to the funds needed to begin the renovation, it can be a significant amount of money. In order to secure the financing needed, it may be a good option to secure between 15 and 20 percent of the project’s total budget in cash – this can be acquired in a number of different ways including personal loans, bridging loans, re-mortgages, and accelerator mortgages.
If the property owner does not own another property or does not have sufficient savings to fund the launch of the project, a personal loan may be a viable option. Personal loans, however, are a very expensive way to borrow money, so it is important to research different loan options in order to secure the best interest rates and secure the highest advance available.
Another option is using a bridging loan – bridging loans can be borrowed based on the equity in a home. Although re-mortgaging is generally cheaper than bridging finance, bridging loans are much easier to arrange and secure, especially for individuals who are working off of a modest budget.
A third option that can be used is re-mortgaging. Re-mortgaging can be used by individuals who own their home or another property. This method is the most effective way of borrowing funds for renovation projects, but also make sure to account for any charges or repayment penalties.
Finally, an accelerator mortgage can be used to secure financing. An accelerator mortgage offers an affordable rate and the option to borrow stage payments through the project’s life. Although this can help improve an individual’s cash flow, it is important to take arrangement fees into consideration.
How to Fund an Extension
If an individual already owns the property and is looking to do renovations or an extension, there are a couple of different options available to help secure funding the project. First, explore increasing the property’s current mortgage to release funding – this is often the easiest and cheapest way to fund an extension project.
But, make sure to research different lenders to find the best deal since switching mortgages can often be a way to save money overall. Secondly, a home improvement loan can be used in this situation. Home improvement loans are the second cheapest renovation funding option, which are easier to secure than a mortgage increase. Finally, but not ideally, a personal loan can be used to fund the project.
Information on Auction Finance
If an individual is interested in buying a property at auction, there are some special financial requirements. Auctions are generally announced only 4 to 6 weeks before the event – this may make it difficult to ensure funding will be available during the auction.
In this situation, it is best to consult with a broker to find lenders who are willing to work with auction financing or who are willing to accept a mortgage application when the property has not been purchased. Short -term funding to purchase derelict properties at auction may be available through some specialist lenders, but these types of loans are generally more expensive than working with traditional banks.
When starting a renovation, it is important to arrange funding first. It is best to approach lenders before starting to look at properties to see what options are available. Having this type of funding in place ahead of time can help to speed up the process once the perfect property has been found.
But, this does not mean signing a deal with the first lender who agrees – make sure to shop around for different plans and wait to ensure you are getting the best deal. Always remember that it is best to secure as much funding as possible for the project and to avoid investing personal funds. Home renovations can be exciting and making sure to have the proper funding will help the project go smoothly.