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Renovation loan

Renovation loan – to serve your home more sparingly for a longer period of time

If you live in your own apartment, sooner or later it will be time for a complete renovation. You can finance this from the renovation loan.

Home renovation and expansion loan

What is a renovation loan?

Renovation loan is a type of loan that aims to improve the condition of an existing property. This, of course, includes not only renovation but also modernization. However, if other limiting factors do not prevent this, you may even have the option to expand.

You can also currently apply for home renovation support for renovations and upgrades.

Concepts for renovation loan

Expansion

This will increase the volume of the structure. This can be done either horizontally or vertically. In other words, you can build a floor on it or an extension structure next to it. This will appear as an extension at a bank as long as you can use it for residential purposes.

Modernization, renovation

Improving the proper and safe use of part or all of an existing property. In this case, you continue to use it in the same way, only increasing the life of the property. Appears as an upgrade when you improve its value in use or operational safety. That is, then you can get a little more out of your house. It can be a larger boiler or better thermal insulation.

Properties of the renovation loan

Who can apply?

Anyone who is creditworthy to the bank and meets the product description of the renovation loan.

That is, you can apply if:

  • You are above 18 years old and able to act. (The upper age limit varies from bank to bank, it usually stops around 70 years, ie you typically cannot be older than 70 years at the end of the loan)
  • you have no cancelled credit
  • you have a regular income that is acceptable to the bank
  • you have a property that can serve as collateral for the loan

How long can it take?

The vast majority of loans available for renovation and expansion are requested for 10 to 20 years. Regardless, it is not set in stone.

At most banks, you will come across offers ranging from 5 to 25 years, there may be differences up and down, but it is not typical or sure that you will use the extreme values.

On the one hand, the term limit is your age (yours and the claimants with whom you take out the loan). The bank may stipulate that it will only accept a debtor if he/she is not older than the prescribed age at the maturity of the loan. That is, let’s say you can’t be older than 70 at maturity. (If there is a big difference between you and your partner, the bank can handle it more loosely). In this case, the upper limit of the term is not necessarily the maximum term of the product, but the age limit.

And the lower limit of the term is your income. It may sound good that you have renovated the apartment and paid for everything in up to 5 years, but with a larger volume renovation, it may or may not fit into your income situation, or if it does, the PIT limit applied by the bank will be the obstacle.

If you think it fits more into your budget than what the bank has approved, consider the longer term as a form of security reserve and use prepayment.

What APR can I count with?

You may have read an article about APR on the site before.

The APR (ie price) of renovation loans available under market conditions is affected by whether the bank has granted you any interest rate rebate, as well as by the interest period for which you have requested the disbursement of the loan.

In general, it can be said that the variance is large, with loans disbursed under market conditions ranging from 3 to 10% APR.

That is why it is important to look carefully at that

  • whether state aid is available to you
  • on what terms the bank gives a loan
  • whether the bank gives any interest rebate

What you can still do for your own financial security is cash deductible. In other words, if possible, do not offer extra real estate behind the loan (thus increasing the amount of credit that can be taken out), but have the own funds requested by the bank at your disposal in cash.

Documents required for the renovation loan

Of course, the bank would like to see whether the renovation or expansion before granting the loan

  • feasible
  • at what cost
  • what is the security (ie if you do not pay, what guarantee that they will get their money back)
  • you are able to repay the loan

Based on this, the documents required for the disbursement of the loan are basically the following (the bank may prescribe more of this, rarely asks less)

  • identity documents
  • documents proving the income situation (the form must be provided by the bank)
  • property details (title deed, map copy, floor plan in case of existing property)
  • building permits
  • construction plans
  • valuation
  • budget: You can also download a sample budget for renovations and expansions from the Silver Moon site, the bank will ask you about the same.

Renovation loan collateral

Your own income

There are several places, where your own income can be charged according to the PIT regulations, in which case all income is taken into account. That is, not only your own income, but also all the claimants in the loan as debtors or co-debtors. In the same way, they look at all the loans and credit lines you have taken and compare this with the regulations.

In a credit rating the bank looks at how the household’s income is evolving. Here they examine whether you have a regular income. This can be easily verified as an employee, in most cases a current account statement is sufficient, on which the credit is displayed as a salary. As an employee, usually you only need to certify for 3 months, meaning if you are no longer on probation, you can be creditworthy.

As entrepreneurs, banks tend to be judged differently, some where dividends are not accepted, some where only the part transferred can be taken into account. What they agree is that a newly started business (without 1 closed year) is not creditworthy even if it is otherwise successful.

Acceptable income of banks (the level of eligibility varies from bank to bank):

  • wages (here it may be important whether you work for a family member’s business or whether your income is domestic or foreign)
  • other income (real estate expenses, dividends, royalties, annuities, cafeteria, commission fee)
  • your income from your own business (primary producers are not excluded either)

Real estate

The loan is secured by a mortgage registered on the property under the Credit Institutions Act.
With a renovation loan, the bank accepts many types of real estate as collateral, the most obvious being the one you want to renovate.
However, it depends on the bank what you accept as collateral, but they are typically accepted:

  • residential house
  • plot (here mostly only building plots in the interior)
  • a weekend house, holiday resort or its building plot
  • condominium apartment

The garage and storage are already very borderline cases, in many cases it is difficult to accept them as additional collateral for the renovation loan.

What happens when you renovate a property that is not yours but you use?

This is most often an issue when the property is nominally owned by the parents or is inherited, so other family members also have registered ownership.
As a tenant, this issue is relatively rare, after all, it may be more convenient to look for a more modern property instead of a renovation. Legally, however, the same issue arises here.
If you just live in it but not yours, then no problem. In this case, you can also use this property as coverage and it can be the target. You then appear as a debtor, and the property owners agree as mortgagor that the bank will accept the property as collateral (i.e., register a mortgage on it).

Renovation loan: from application to repayment

The renewal loan goes through the same steps as any other loan product during the application process, you can read more about this in the article on the process of borrowing.

Applying for a loan

At this stage, you will choose the right bank and loan type for you, either alone or with help. Then, after reviewing your options and needs, you will find out what credit product you can use to do the job and whether you are eligible for any support that will make it easier for you.

At this point, you specify the period for which you want to apply for the loan, and you can also specify the method of interest.

After collecting and submitting the documents requested by the selected bank, the bank will decide during the credit assessment how much you can approve for you.

Disbursement of the renovation loan

After a positive loan decision, the bank expects you to confirm the degree of readiness. This means that the appraiser goes out, conducts an on-site inspection and inspects the work, and then confirms that it has been completed (if it has actually been completed).

Based on this, the renovation loan will be disbursed in installments. This is advantageous for you, as the bank can only charge an availability fee for the amount not yet used, obviously not interest. And that means lower pay.

Be aware that the bank does not wait indefinitely, so in the case of protracted work, it is possible that you will either not pay any more at all or that a contract amendment will be required. The former means less credit for you and the latter comes at a cost.

Repayment of the renovation loan

As the renovation loan is also repaid by annuity, if another installment has been made in the meantime, the bank will also calculate this new amount. If you have not requested a grace period or it has not been approved by the bank, you must start repaying the amount already withdrawn immediately after the month following the payment.

Questions:

  1. If you have real estate, do you carry out the renovation completely on your own or do you plan to apply for a loan?
  2. What kind of state support would you require (either with or without credit) for the renovation?
  3. How many partial disbursement do you think can be optimal for a renovation?

You can search for questions on this topic in the contact menu, or feel free to comment on social media.

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