Borrowing more than house value

hurlsey · 23-09-2015 2:28am #1

A property has come up for sale in my area, it needs extensive renovation, however it is selling for 100000, I already have more than the 10% necessary deposit to apply for a mortgage!

However I would like to borrow 129000, including my deposit I would have 145000!! Taking away fees and the purchase price of the house, I would have circa 40000 to renovate the house!
I can afford the repayments based on the new Cb rules!!

Can I do this? Or is this something I would have to discuss with my bank?

Toots · 23-09-2015 3:16am

AFAIK the max mortgage you can get is 90% of the property value.

syklops · 23-09-2015 3:19am

Toots wrote: »

AFAIK the max mortgage you can get is 90% of the property value.

Of the property value or the asking price?

Toots · 23-09-2015 3:28am

syklops wrote: »

Of the property value or the asking price?

Property value, it's why the banks require a valuation to be done by a member of their approved panel. A colleague had a case only recently where the asking price on the house was €300K so customer was applying for 270, but the banks valuation came back saying that house was only worth €280K. It's under appeals at the moment but from what I've heard 2 more valuations have been done and still neither are giving it a 300K value.

hurlsey · 23-09-2015 4:46am

Toots wrote: »

Property value, it's why the banks require a valuation to be done by a member of their approved panel. A colleague had a case only recently where the asking price on the house was €300K so customer was applying for 270, but the banks valuation came back saying that house was only worth €280K. It's under appeals at the moment but from what I've heard 2 more valuations have been done and still neither are giving it a 300K value.

So basically there's no way for me to purchase the house, unless I have the cash to renovate it myself? I could easily get a mortgage for the price of the house given my deposit and the asking price of the house!!

I dont have the 30-40k necessary to turn it into a home, unless of course I could mortgage it!!

Peregrinus · 23-09-2015 4:56am

What you are essentially proposing to do is borrow to do work on the house.

Think of this as two loans; a loan to buy the property, and a second loan to enhance the property you have bought.

Banks do lend for the second purpose, but they need reassurance that the amount they advance will be spent on enhancing the property, and that the expenditur will enhance its value by more than the amount lent.

So by all means talk to the bank. If they do agree to this there will certainly be conditions, which may include that the loan is advanced only in stages, as the agreed work is done and signed off. So there may be cash-flow issues for you.

Tefral · 23-09-2015 5:02am

Peregrinus wrote: »

What you are essentially proposing to do is borrow to do work on the house.

Think of this as two loans; a loan to buy the property, and a second loan to enhance the property you have bought.

Banks do lend for the second purpose, but they need reassurance that the amount they advance will be spent on enhancing the property, and that the expenditur will enhance its value by more than the amount lent.

So by all means talk to the bank. If they do agree to this there will certainly be conditions, which may include that the loan is advanced only in stages, as the agreed work is done and signed off. So there may be cash-flow issues for you.

For renovation mortgages they only give you 75% of the renovation cost also.

ArseBurger · 23-09-2015 5:07am

hurlsey wrote: »

So basically there's no way for me to purchase the house, unless I have the cash to renovate it myself? I could easily get a mortgage for the price of the house given my deposit and the asking price of the house!!

I dont have the 30-40k necessary to turn it into a home, unless of course I could mortgage it!!

Basically what you are saying is that you cannot afford this house. Think of it that way.

Peregrinus · 23-09-2015 5:17am

ArseBurger wrote: »

Basically what you are saying is that you cannot afford this house. Think of it that way.

He possibly can afford it. He says he has "more than" the 10% deposit required to purchase it, i.e. more than 10k.

If he wants to spend another 40k renovating it, he can (all going well) borrow 30k of that, so he'll need another 10k; total 20k.

We don't know how much more than 10k he already has; he may be well on the way to 20k. He may even have it. Or, he might scale back his renovation plans to bring the total required down to what he actually has.

hurlsey · 23-09-2015 5:50am

ArseBurger wrote: »

Basically what you are saying is that you cannot afford this house. Think of it that way.

I can afford it though, I have 16k atm, given the new ecb rules I can borrow a max of 129000, that equals 145000!

Take away the 100000 to purchase the house, and 4-5000 in fees, that leaves 40-41000 to renovate the house and turn it into a home!!

All of the money borrowed would be spent on the house!! I have no intentions of using a cent to cover a holiday or car

My monthly repayments would be 6-700/month I'm currently saving 900/month! (this is also topped up at the end of the month by any excess which I may not of spent from what I leave myself to live on)

Peregrinus · 23-09-2015 6:37am

No, you can't, not quite.

All going well, they'll lend you 90% of the purchase cost of the property (i.e. 90k out of 100k) plus 75% of the renovation cost (30k out of 40k). That leaves you needing to find 10k to complete the purchase, plus 10k to complete the renovations, plus let's say 5k for fees and bits and bobs.

You need 25k; you've got 16k; you're shy by about 9k. But as you are currently saving 900/month, you should be able to accumulate that amount in 10 months or so. By then, of course, the house you're looking at right now will probably not be on the market.

Possibly you can narrow the gap by trimming your renovation plans a bit, or by doing part now, the really essential bit to make the house habitable, and part later, when you have saved a bit more. Or, if the house is habitable even now, defer the whole of the renovations.

Qualitymark · 23-09-2015 6:59am

hurlsey wrote: »

A property has come up for sale in my area, it needs extensive renovation, however it is selling for 100,000, I already have more than the 10% necessary deposit to apply for a mortgage!

However I would like to borrow 129,000, including my deposit I would have 145,000!! Taking away fees and the purchase price of the house, I would have circa 40,000 to renovate the house!
I can afford the repayments based on the new Cb rules!!

Can I do this? Or is this something I would have to discuss with my bank?

Put in the commas so I could understand the numbers; without them, they were just (to me) a jumble of zeroes.

Talk to the bank and see what they say, maybe? If you can afford the repayments, this sounds feasible enough. Though banks can be iffy; back in the day I was refused a loan by a sneery manager in AIB (now a zillionaire, afaik), who said I was "unreliable" not to have saved both the huge deposit *and* the money needed to upgrade the house.

But try other banks if you're refused - while keeping an eye on the interest you'll sign up to pay, obviously.

An alternative is to borrow from the bank on the house (if the bank will lend on a doer-upper), and borrow the renovation money from the credit union.

ted1 · 23-09-2015 7:09am

The bank will tell you to get a personal loan to renovate. You'll be paying closer to 11% and repay over 5 or so years

alibab · 23-09-2015 8:02am

I bought my house and like that it needed some minor renovations nothing like 40,000 more like 10,000. when looking at other properties there was one that needed more extensive renovation and i spoke to AIB at the time . They would have given the 75% renovation cost etc but when i looked into it and how i would have to go about it it simply wasn't worth the hassle . I ended up going with the mortgage with AIB and then they gave me a personal loan for 10,000 for the renovations and put it over five years . When saving my deposit i was saving a lot a month and i just paid off the renovation personal loan in a year i just didn't have it upfront . I would say contact them and talk to them and see what they suggest .

phormium · 23-09-2015 9:09am

The way to put this proposal to the bank is as follows:-

Purchase price 100k
Proposed Renovation 40k - Total Cost 140k

Now this is the crucial part, what will the value be after renovation? I am assuming for the purposes of this example it will be 150k (If it's higher no problem, lower then you're in trouble)

If so then you need-

90% of total value 135k
10% deposit 15k

It all hinges on the finished value which will have to be confirmed by the bank valuer considering the present house and the proposed renovations (quotes etc will be needed for these), check with bank what they want.

So in theory you want loan approval for e.g. 135k, if you get that what then happens is that 90% of the actual purchase price, 90k, is all that is released initially to enable you complete purchase, the rest is retained until the work is done or can sometimes be released in stage payments.

If the bank goes for this sort of proposition it's getting the work done then without the money up front that is the issue you need to sort, temp loan somewhere, bank may even give you temp overdraft etc. which will be cleared on completion of renovations and release of retained portion of mortgage.

From the banks point of view there can never be more owing than 90% of house value which is why you cannot borrow 129k day one to buy a 100k house and why additional money approved can only be released when extra work and therefore extra value is confirmed as done, usually by valuer or architect/engineer if you are having one.

Archaeoliz · 23-09-2015 9:18am

hurlsey wrote: »

A property has come up for sale in my area, it needs extensive renovation, however it is selling for 100000, I already have more than the 10% necessary deposit to apply for a mortgage!

However I would like to borrow 129000, including my deposit I would have 145000!! Taking away fees and the purchase price of the house, I would have circa 40000 to renovate the house!
I can afford the repayments based on the new Cb rules!!

Can I do this? Or is this something I would have to discuss with my bank?

Just checking - you don't mention that you are a first time buyer even though the 10% deposit implies you are. If you're not a FTB you need a 20% deposit for the new rules.

pwurple · 23-09-2015 9:24am

OP, I'm always delighted to hear people who have the ambition and inclination to renovate. It does good for all of us to see run down places done up! Well done for wanting to put your money where your mouth is and improve some part of the country as well as your own situation.

Now, on renovation, looks like you can afford to buy the place, but will need to save a bit to renovate. So, is it livable in it's current state?

There are some renovation incentives you can look into, which might bring down your renovation costs.

Here is the home renovation section on revenue. It's how to apply for tax credits for the work you are doing.
http://www.revenue.ie/en/tax/it/reliefs/hri/

There is also the SEAI grant system if your improvements include insulation or improvments to the heating system (which I imagine they do!)
http://www.seai.ie/Grants/Better_energy_homes/?gclid=Cj0KEQjwm4mwBRCni-ivmePYivkBEiQAdGkklrjlXmOyfiwyHnJ0bla-5AnwZylrRPmsTN6RlGD64m8aAjYa8P8HAQ

23-09-2015 10:07am

I'm surprised the banks make this so difficult, they offer mortgages for buying a house and they offer mortgages for self building a house (up to the full value too less deposit). This is a bit of a hybrid mortgage that could simply be given in stages like a self build.

First drawdown to cover the purchase price and then a staged drawdown for the rest as work is completed as is done with a self build mortgage.

Don't see why this is not a straight forward product offered by the banks, its no more or less risky than any other mortgage.

phormium · 23-09-2015 10:18am

That is the way this type of scenario was always catered for, it is a hybrid as you say, important thing is to apply for whole deal day one, buying plus renovation, and not just apply to buy and then go looking for the renovation bit.

Now the banks may not be as open to it as before but it is still possible BUT it hinges on the finished value. Person A could spend 40k putting in gold plated taps in the bathrooms and not add any value, Person B could spend 40k and add an extra bedroom giving extra value in excess of cost. Far out example but you get the drift.

hurlsey · 28-09-2015 1:04pm

Just thought I'd update, someone has put in an offer of 124k, which I think is laughable, there's about 40k worth of renovations to be done(at best)!!

Obviously if someone is prepared to pay that, that is their business, but I've noticed a trend in sales in my local area where houses are selling way over there asking price/worth....

I see another bubble about to burst but I could be wrong!

Trix · 28-09-2015 2:05pm

hurlsey wrote: »

A property has come up for sale in my area, it needs extensive renovation, however it is selling for 100000, I already have more than the 10% necessary deposit to apply for a mortgage!

However I would like to borrow 129000, including my deposit I would have 145000!! Taking away fees and the purchase price of the house, I would have circa 40000 to renovate the house!
I can afford the repayments based on the new Cb rules!!

Can I do this? Or is this something I would have to discuss with my bank?

Hi Hurlsey,
this is my story if it helps.
myself and husband bought a house for back in March. it needed to be completely gutted so we needed the same amount again in renovation money.
we got 90% of purchase price of house. and than renovation money was drawn down in stages. the bank held back 15000. so we needed to have this money ourselves to pay builder. but will be getting this money back as soon as house is re-valued and signed off.
we went with the BOI and I have to say we haven't had one bit of trouble or hassle with them.
we also enquired with the AIb and if my memory is correct they only gave 75% of renovation costs.

Borrowing more than house value

Comments