Post updated: 24/02/2023
The house you are buying needs house renovations – so how do you fund these renovations? There are various ways you can fund renovations. You can take out a bank loan or credit union loan once you complete on the purchase of a property. If you don’t fancy the loan interest rates, you can save up and do the works gradually once you move into your new home. You can also borrow funds for house renovation as part of your mortgage.
The big question is whether the house is habitable – does it have a working kitchen, bathroom, water, heating, etc. If it is not habitable, then your only option is to try and get your mortgage provider to lend the funds to do the work. Note that you will not get a mortgage on a property you can’t live in with a view to doing work at some point in the future. There are two types of house renovations, structural and non-structural. They are very different when it comes to mortgages.
Non-Structural Works – House Renovations
Non-structural renovation works are normally cosmetic such as Kitchen Upgrade, New Widows, New Bathroom, New Doors, etc. However, you are buying a property you can live in or needs something minor like a kitchen to make it habitable. To make this work, a mortgage lender must know in advance of the type of work that you plan on doing. This is part of the mortgage application. It involves a two stage valuation process which must be carried out by the same valuer. The first valuation will give a current value assuming the works are carried out. The second valuation confirms the works are done to the property. The property value must increase as a minimum in line with what you are spending on the renovations.
The tricky bit
The monies for the renovation will not be released until the works are done. This is called a hold back which means you will have to fund any upgrade up front. You then get the money back from the lender once works are complete and the valuer has confirmed same.
How Much Can I borrow for house renovations?
You can borrow up to 90% of the purchase price and up to 90% of the renovation. For these types of works, lenders will consider loans up to approximately €40,000. Both the additional borrowing and initial mortgage are subject to lender’s income multiples (4 times for first time buyers and 3.5 times for second time buyers maximum based on income to cover both loans).
Structural Works House Renovations
Structural works mean that something is being removed or added to the house, such as an extension. Unlike non-structural renovations, you will have to employ the service of an architect/engineer to oversee the works and approve the costings. Again, this is to be included in the initial mortgage application. If planning permission is required, this needs to be in place or the lender needs to be made aware that you will be applying. Furthermore, you should be starting works within 6 months of initial mortgage drawdown.
How do they work?
There is a two-stage valuation process, which must be carried out by the same valuer. The first valuation will give a current value based on the purchase price and a valuation assuming the works are carried out. The second valuation confirms the works are completed. With these type of works, a lender would expect the property to increase in value at least 20%. The money to cover the works is again held back until works are done. However, for large renovations, the money is released in stages once your engineer signs off on the work. For example, you may get the money for the foundations on stage one, walls and roof on stage two, etc. You would need to fund each stage in advance or ask your builder to wait for monies to be released by lender.
How Much Can I borrow?
If you are first time buyer, you can borrow 90% of the purchase price and up to 90% of the works subject to an uplift in the valuation which will leave at least 20% equity in property.
Buying a house for €100,000 – Borrow €90,000
House renovations cost €50,000 – Borrow €45,000
Total borrowing €135,000
The property would need a final valuation of €168,750 (€135,000 plus 20% increase in value).
If you are a second time buyer, you can borrow 90% of purchase price and 90% of cost of works. Both the additional borrowing and initial mortgage are subject to lender’s income multiples (3.5 x times maximum based on income would need to cover both loans or you may get an exception if available).