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Best way to finance house extension

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  • 12-05-2021 1:50pm
    #1
    houseyhouse
    Registered Users Posts: 686 ✭✭✭


    We bought a house just before COVID with the intention of renovating and extending it. What's the best way to finance the extension? Obviously savings would be ideal but we don't have enough. Building costs are gone mad and I think we'll need at least 150k more than we have available (maybe even 250k :eek:)

    We own an apartment that we became 'accidental landlords' on when we had to move for work several years ago and were in negative equity. It pays for itself but doesn't make us much money once mortgage, management fee, upkeep, and taxes are paid.

    As far as I can tell options to finance extension are:

    - increase the mortgage on our home. With our incomes I think we could get up to 100k more than we have at the moment. Not sure if the bank would give it to us before the work is done though. Partner recently changed jobs too so there'd be a waiting period.

    - remortgage the apartment. I think we could get about 85k (up to 70% of value) but we'd then be losing money on the apartment each month which makes me a bit uncomfortable for some reason.

    - sell the apartment. We'd get around 125k once fees and CGT were paid.

    - Get some other kind of loan, e.g. credit union

    - other options???


Comments

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    #2
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,644 Mod ✭✭✭✭Henry Ford III


    Whatever you do don't over borrow.


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    #3
    Bass Reeves
    Registered Users Posts: 18,214 ✭✭✭✭Bass Reeves


    What size is the house, are you putting on an extension. How big is your present budget. I get the impression you intend spending 3-400k on this project

    Slava Ukrainii



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    #4
    houseyhouse
    Registered Users Posts: 686 ✭✭✭houseyhouse


    It's a normal 3 bed semi. Currently about 100sqm, would like to increase it to c.180sqm. We're not looking for luxury finishes or anything just more space and will need to upgrade the existing building in line with building regs. Based on what I'm seeing about building prices, the total budget would need to be 200-300k (80*2.5k for extension + 100*1k for renovation = 300k but we'd be hoping to save a bit on that). I know that we'll end up spending more than the house is worth between purchase price and renovation/extension costs but we plan to live here for decades so we're ok with that.

    We have about 60-70k available at the moment but can probably save enough to get to 100k if we're strict without ourselves over the next year or so. The simplest thing would be to save hard and sell the apartment, giving us 225k(ish) and no additional loans. The apartment is our only investment though and we don't have big pensions so there's a part of me that thinks we should hang on to it.

    @Henry Ford when you say don't over borrow, what do you mean?


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    #5
    Tombo2001
    Registered Users Posts: 6,508 ✭✭✭Tombo2001


    I would very much look at the apartment as an investment.

    When you say 'it doesnt make us very much money' - it does, but it just doesnt put money in your pocket.

    The net value of the apartment is value less mortgage - each month the mortgage goes down, your wealth goes up.

    Re the OP - I dont know the best way to finance this.....but just my tuppence on the apartment.


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    #6
    houseyhouse
    Registered Users Posts: 686 ✭✭✭houseyhouse


    So I've thought about this some more and I suppose the real question is: is it better to have an investment property (the apartment) and additional debt of some kind or to have no additional debt beyond our home mortgage but also have no investments?

    Thanks


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    #7
    listermint
    Registered Users Posts: 33,739 ✭✭✭✭listermint


    Hold off renovations for a year and a half tbh. The house isn't going to close in around you.

    Youll have more time to plan save and actually get a better feel for what you want .

    There is no sense doing renovations work at the top of the market more so when you don't have the finance to back it up. That will create stress on you


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    #8
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,644 Mod ✭✭✭✭Henry Ford III


    houseyhouse wrote: »

    @Henry Ford when you say don't over borrow, what do you mean?

    Look at the max. mortgage figures you provided. These are capped because there's consideration given to your ability to repay.

    I wouldn't borrow a cent over that level.


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    #9
    houseyhouse
    Registered Users Posts: 686 ✭✭✭houseyhouse


    listermint wrote: »
    Hold off renovations for a year and a half tbh. The house isn't going to close in around you.

    Youll have more time to plan save and actually get a better feel for what you want .

    There is no sense doing renovations work at the top of the market more so when you don't have the finance to back it up. That will create stress on you


    I agree and I think we won't actually do any work for at least a year or two but I'd feel much happier if we had a plan for financing it.


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    #10
    listermint
    Registered Users Posts: 33,739 ✭✭✭✭listermint


    houseyhouse wrote: »
    I agree and I think we won't actually do any work for at least a year or two but I'd feel much happier if we had a plan for financing it.

    You'll be alot happier sitting on an apartment nest egg than you will having extra kitchen space in the long term.


    Get your plans together. Save save save. You may be in a position where the market is lower and you can do the works from a credit union or Avant loan for example.

    Throwing money at it now because you have a burning need to open up the space is short term thinking.


    But again it's your money. But if always be against overleveridge of your finances.


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