Mortgage question - how is LTV calculated re doer uppers

quad_red

Hi folks,

I've a quick question about mortgages which I haven't been able to find a definitive answer on. It's basically related to loan to value calculations.

Basically - say a couple have 50k in savings.

Scenario 1: They buy a new build for 200k in turn key condition. No works required. They put the 50k to a deposit so it's a 75% mortgage of 150k.

Scenario 2: They buy a 'doer upper' for 150k. It requires 50k worth of work.

What is the calculation here? They're obviously not going to get a 100% mortgage for 150k. But at the same time, the house despite being bought for isn't 'worth' 150k with the additional works.

How is this calculated?

Cheers,
Quad

killers1

quad_red wrote: »

Hi folks,

I've a quick question about mortgages which I haven't been able to find a definitive answer on. It's basically related to loan to value calculations.

Basically - say a couple have 50k in savings.

Scenario 1: They buy a new build for 200k in turn key condition. No works required. They put the 50k to a deposit so it's a 75% mortgage of 150k.

Scenario 2: They buy a 'doer upper' for 150k. It requires 50k worth of work.

What is the calculation here? They're obviously not going to get a 100% mortgage for 150k. But at the same time, the house despite being bought for isn't 'worth' 150k with the additional works.

How is this calculated?

Cheers,
Quad

Using your figures and example in scenario 2 the bank lend €100k for you to buy property for €150k. They then lend a further €50k on completion of the proposed works or by stage payments so long as the Valuer has indicated that the value on completion will be within their loan to value policy. Basically, they look for you to put your €50k in first and will then consider lending up to 100% of the build costs.

quad_red

killers1 wrote: »

Using your figures and example in scenario 2 the bank lend €100k for you to buy property for €150k. They then lend a further €50k on completion of the proposed works or by stage payments so long as the Valuer has indicated that the value on completion will be within their loan to value policy. Basically, they look for you to put your €50k in first and will then consider lending up to 100% of the build costs.

But isn't that dreadfully dangerous?

Like, why would anyone even consider a doer upper then? Like, you'd be stuck with a ballsed up house with all your cash gone into the mortgage.

You'd be sunk!

killers1

quad_red wrote: »

But isn't that dreadfully dangerous?

Like, why would anyone even consider a doer upper then? Like, you'd be stuck with a ballsed up house with all your cash gone into the mortgage.

You'd be sunk!

Not really, you would have the mortgage approval in place for the initial purchase and the renovations up front. If for arguments sake the property would be worth €200k after the work is finished you're in the exact same boat as scenario 1) €150k mtg @ 75% ltv
Banks like to see people put their share to the inititial purchase. Otherwise they are lending 100% finance for you to buy at€150k and you might never do any works which would leave the bank badly exposed.

[Jackass]

Either they would strictly calculate the LTV based on purchase price, or for scenario two, they would lend you 115k to buy the house, you would need to use your 50k "deposit" to cover the extra 35k purchase price, and they would approve you for a further 85k, paid in installments as and when needed, but payable directly to contractors for the work following inspection from the bank. i.e. only issues funds as the work is being done, like for an extension to the house etc. and sending around valuers to monitor the works so that the LTV is being maintained as funds are being issued.