Borrowing Money For Renovation: 5 Step-by-step Plan
Here you learn in a few steps how you can borrow the best money for a renovation.
After all, have you been living in your own house for some time and does the bathroom need to be renewed, or do you need more space in your house with your family? Rebuilding your house is always a good investment to increase the sales value.
If you have insufficient savings to finance the renovation, you can borrow money for this. You can take out an extra 2nd mortgage for your renovation, or you can take out a personal loan.
Below you will find a handy step-by-step plan with which you can calculate the costs of a renovation and how you can best finance it.
- Budget : calculate the total costs of renovating your house
- Duration : determine the duration that best suits your renovation
- Type of financing : read the article below and choose the type of financing
- Quotations : request quotes from lenders for a refurbishment loan
- Lender : choose the lender with the most favorable interest and conditions
1. Make a budget
Renovation of your home starts with a budget . You can see which part of the renovation you need to finance, or what you can pay for yourself from your savings. If you want to borrow money to renovate, making a full cost overview is your guideline.
Usually the help of a professional or contractor is needed to realize a renovation and you request a quote from him. Look not only at the purchase of the materials, but also at the cost of the labor of a professional. You may need to purchase or hire additional equipment.
A permit must usually be applied for. It is also important to check carefully whether your insurance needs to be adjusted. If all costs have been calculated, add between 5% and 10% for unforeseen expenses.
Beyond the price, more things must be clearly defined in the quotation, such as:
- Is the quotation free of obligation and free of charge?
- What is the validity of the quotation and is it long enough for your situation?
- Can additional costs be added? Are these well defined?
- Do you get sufficient insight into the use of materials?
- Is the contractor affiliated with a sector organization?
- What kind of guarantee does the contractor give?
Usually the most important reason to start renovating is to increase your living pleasure. But if you can increase the number of square meters of your home through a renovation, you are also investing in a lasting increase in the value of your home.
And perhaps even more important is the cosmetic increase in value . If you continue to live in your converted house, you will enjoy your new bathroom or dormer window every day. Taking out a personal loan for a renovation of your house will certainly pay for itself in a rising market.
What does an average renovation cost?
Home Owners Association has set out a guideline for costs:
2. Determine the duration
If you are going to take out a credit for a renovation, look carefully at the duration that you can take into account. After a few years you will have the financial room to renovate again.
In the current market situation, borrowing extra money for a renovation is a good investment. Rising house prices make borrowing for a renovation interesting . Most of the costs incurred will be earned back with the possible sale of your house.
Of course, renovations of, for example, the bathroom or kitchen are trend-sensitive and taste is very personal. Kitchens and bathrooms are also subject to wear. The lifetime is longer when placing an extension or a dormer window.
What options are there to borrow cheap money for a renovation?
You can finance a renovation or pay for it yourself . If you have savings, you can use this and you need less financing for the renovation of your own home. But you also need your savings account as a buffer.
The car needs a big turn, the washing machine can break or you may also want to make a trip. If you prefer to keep an amount of your own money for this, you can also borrow money for a renovation .
Borrowing money costs money , that’s no different. The cheapest way is to borrow money from your family for a renovation. Maybe you can borrow money from your parents. But luckily there are other ways to borrow extra money for a renovation. You can take out a loan or increase your mortgage for the renovation.
The video below from RTLZ gives a good overview of the financial options and benefits of renovating your home:
Can I finance the renovation with the purchase of a new house?
If you want to co-finance the renovation in your mortgage, you can borrow a maximum of 100% of the value of your home in 2018 . To determine whether you can co-finance the costs of the renovation, the market value of your house after the renovation is looked into.
The value of your house is determined by an appraiser. He makes a valuation report. Co-financing a renovation when purchasing your home is therefore always financially interesting.
Can you also borrow money for a renovation of your old house?
If you want to renovate your house there are a number of possibilities to finance this. For example, you can take out a 2nd mortgage . Pay close attention to the value between the height of this renovation mortgage and the value of your house.
The more you borrow, the higher the risk is for the Albert Campion. As a result, you will soon pay a higher interest rate. With an additional mortgage for a renovation, you also have to stay at the Albert Campion that has already provided your mortgage.
Use surplus value
The rising house prices are especially interesting if you have owned your owner-occupied property for some time. If you want to renovate your house, you can also finance the renovation with the surplus value of your house . Because the value of your home has increased over the years, you can use this surplus value to borrow extra money from your mortgage.
3. Select the type of financing
If you want to take out a loan for the renovation of your home, you can also take out a personal loan . Certainly if the amount is relatively low in relation to the value of your home and the duration of your renovation loan is short, you will have a financial benefit.
If you want to request a loan for the renovation of your house, you do so as an investment for the longer term. You can adjust the duration of the personal loan to the duration of use. The interest rate with a personal loan is higher than the mortgage interest rate.
Yet it is often cheaper to take out a personal loan. When raising the mortgage, additional costs are often incurred because advice and handling fees have to be paid to the mortgage lender when adjusting a mortgage.
In addition, notary and appraisal costs are added. This can amount to a few thousand euros. With a personal loan you do not have those costs, that makes it a cheap loan for a renovation.
Example calculation of additional costs for a 2nd mortgage:
Please note, if you have a mortgage and you are registered as negative creditworthy by existing debts, it is difficult to qualify for a second mortgage or loan at all.
4. Request quotes
If you take out a personal renovation loan after requesting quotes, you do not have the above costs. Unlike a physical Albert Campion, when you take out a personal loan online, you are usually not charged any consultancy fees . However, other costs may be charged.
Therefore, look carefully at the amount that you must repay in total. The Annual Cost Percentage (APR) is a clear indication. All this information can be found in the quotes that you have requested. Request at least 3 quotes. 6 is even better. That way you can compare even better.
5. Choose lender
Now choose the financier with the lowest interest rate (APR) and any other costs from all your received quotes. Also note in the small print any penalties for early repayment . If you have a financial windfall in the near future, you can use this to repay the loan early.
Two experiences of consumers who have preceded you:
Karin de Groot (44): Our bathroom was still good in itself, but I was so annoyed by the dirty joints between the tiles. Together with the installer, we have opted for large dark tiles, giving our renovated bathroom a truly luxurious appearance. In two years our personal loan will be repaid, and I would like to have the kitchen renovated.
Henk-Jan Lakeman (33): With our assembled family we needed more bedrooms. I have therefore chosen to renovate the attic and have a dormer window installed across the width of the house. I arranged the financing with a renovation loan. I know exactly what I have to pay per month and when the loan will be repaid.
Is borrowing money for a renovation deductible?
The interest that you pay with a personal loan for a renovation can be deducted from your income under certain conditions. It is important that you can prove that you have used the loan for the renovation. Therefore, keep all bills and receipts that were made before the renovation.
Information about deducting interest paid and costs for a loan or mortgage can be found here on the website of the tax authorities.
Rebuilding a house costs money, but always delivers.
Quite a lot is involved in a renovation. The right preparation and a good choice for financing are important, but delivering enjoyment in a beautifully renovated house is also worth a lot. That is as certain as a house!