If you're looking to improve your property by renovating or adding a new extension, a natural question you will have is around how to finance the work. Connection Construction, Extension Builders Essex, take a look at the issues you need to consider.
Most lenders will only offer a mortgage on habitable properties, which effectively cuts off many opportunities for financing a complete renovation via a mortgage. If you want to buy a derelict property with the intention of converting it, you will have to deal with a specialist lender, with the terms varying according to the condition of the building.
How Renovation Financing Works
If the home you want to purchase is in poor condition but still habitable, lenders will typically offer anywhere from 80 to 95% of its current value, but may insist on a retention, or withholding of some funds, until certain repairs are completed. The home may have to be re-inspected before you receive the rest of the money.
If a property is uninhabitable, your best bet is to approach a lender specialising in self-build mortgages. These are more inclined to fund conversations or renovations, and may advance anywhere from 66 to 90% of the property value, releasing the funds in stages as you restore the building.
The cost of starting the renovations and keeping them going between stage payments will have to be funded by savings, loans, or supplier credit unless you can find a lender that offers stage payments in advance.
How Much You Can Borrow
Lenders calculate the amount you are eligible to borrow by reviewing your income and assessing available disposable income. If you are self-employed or have a rocky credit history, it may be worth working with an advisor to find a lender willing to work with you.
Finding a Deposit
Most people use a mortgage that advances between 66 and 90% of the property’s current value for renovation, so you will need to source funds for the balance of the sale price as well as survey and design costs and enough money to commence the renovation work. A good rule of thumb is to get 15 to 20% of the total project budget in cash to cover these costs.
Options for Financing Home Extensions
Funding an extension on your own home can potentially be more straight forward with options such as re-mortgaging or a home improvement loan.
Re-mortgage: If you own your home, you can access funds for an extension by re-mortgaging the property.
Bridging loan: Those with enough equity in their home to fund the extension project can use a bridging loan, which is easier to arrange than a mortgage if your income is a modest one.
Personal loan: Personal loans are a comparatively expensive way to acquire funding, so ensure that you work with a lender that offers higher advances in minimise insurance
Home improvement loan: If you already own the home you plan to extend, you may take out a home improvement loan and secure it against the property.
Whichever financing route you take, be sure to approach several lenders to find the best deal. If you don’t own the property, obtain as much funding as possible to purchase it and use your own money for the renovation work. This is more budget-friendly than stage payments, which typically take time to arrange and include a revaluation fee.
About Connection Construction : Extension Builders Chelmsford & Essex
Connection Construction is a main contractor providing both residential and commercial building services in Essex, including Chelmsford, Braintree, Colchester and Maldon.
Our team of contractors and subcontractors have years of experience in completing successful garage conversions, extensions, and complete new builds in the Essex area and we always show exceptional attention to detail in our construction work. We take great pride in every contract, where even the smallest of jobs is delivered with the same level of detail and care as major, high profile, developments.