The most common method of financing the renovation of a house or apartment is a loan. To buy an apartment, we take a mortgage and take a separate cash loan for renovation.
We often plan to put aside funds that we want to spend on the device or minor repairs at home, but in fact, we are still asking for help from the bank because we want to get rid of the problem as soon as possible.
Home renovation loan – cash loan
Why do we most often reach for a cash loan? Because home mortgages are still not so popular. In addition, the time to get a cash loan is much shorter than for a mortgage. The difference is significant – when deciding on the first option, we have to wait a maximum of 2 weeks, and with the second option the waiting time is up to 3 months.
What else can speak in favor of cash loans? Certainly, the fact that you can take a cash loan for any purpose and bank will not require you to provide invoices or proof of purchase.
In addition, the amount of documents needed when applying for a cash loan is much smaller and is practically limited to one – earnings certificate.
Advantages of cash loan for home renovation:
- no loan collateral is required,
- short credit time,
- loan for any purpose,
- the minimum number of documents needed.
The great advantage of cash loans is that the property you want to take out for does not have to be your property. This can be particularly useful when the apartment belongs to, for example, your partner, and you only want to financially support his device.
Home renovation loan – mortgage
A mortgage for the home renovation can, under certain circumstances, be more profitable than a cash loan. This is because the interest rate for such a loan is much lower than for a cash loan. The difference we are talking about can reach as much as 6%!
In addition, hardly anyone knows that a mortgage for a home renovation can be taken for a very long period, e.g. 30 years. This means that the monthly installment spread over such a long time will not be too much of a burden to our home budget.
This is an extremely big advantage because, with a large loan value (maximum 60% of the property value), the monthly installment will not be USD 2,000, only about half of it. It is also worth familiarizing yourself with the topic of how to take a mortgage step by step, which will help to dispel any doubts.
Advantages of a mortgage granted for a house renovation:
- maximum loan amount (for a property worth at least USD 350,000, the maximum mortgage amount will be higher than for a cash loan),
- credit length,
- low-interest rate.
A mortgage with the renovation – is it possible?
Banks allow you to combine a mortgage to buy a home with a mortgage for refurbishing your home. However, remember that a mortgage plus renovation may not always be a good option. When combining two products with each other, banks will require a larger down payment.
Most often, the amount of the contribution is calculated jointly for the purchase of real estate and renovation purposes. This means that when deciding to buy an apartment whose value is 250 thousand. USD and matching 50,000 USD, which we allocate for renovation purposes, we will have to accumulate with a 10% own contribution of 30 thousand. USD (25,000 for the purchase of an apartment and 5,000 for renovation).
However, if the bank requires a 20% own contribution from us (the most common scenario), then we will have to put up as much as 60,000. dollars.