We have all sat on our sofa, mentally rearranging the downstairs layout or thinking how an extension could really make all the difference. But for many of us in the current recession, the thought of how to get the money together puts an end to any pipe dreams. What about if you want to buy a run down property and do it up? What are the best options when you need to find a mortgage or a loan?
The amount you can borrow is usually worked out based on multiples of your income or what the lender believes you can afford based on current outgoings. If you are self employed you will need to supply 2 years worth of accounts to prove your income.
Funding for a new property
- Providing the property you want to buy is habitable, it will normally be possible to get 80 – 95% of its value as a mortgage. The bank will often hold back some of the funds – called a retention – until certain repairs are undertaken. The surveyor will point out these required jobs to the bank. These repair works will have to be funded by means other then the mortgage until the money is released.
- If you want to buy a run down property which needs complete renovation before you move in it will be harder to find a lender. Specialist mortgages may be the way to go. You will usually get 66-95% of the house value in it's current state at first and further stage payments as the work is done. The lender will have to inspect the property to see when the next stage payments can be released. Funding for the work will need to come from loans, although some lenders will offer stage payments in advance.
- Once the property is complete you can then re-mortgage and use the funds to pay off any borrowing.
Funding for your own property
- Increasing your current mortgage is almost always the cheapest form of lending. In the current climate this might be difficult, but interest rates are low so it is a good time. Sometimes it is possible to find a good deal from another lender – so don't be afraid to change mortgages. Just take any fees into account.
- A home improvement loan is the next best option. You can secure it against your home (providing you have the equity) and it may be easier to get at the moment.
- A personal loan is also a good option. These do not have to be secured and can be taken out for any reason. The cap on a personal loan is usually £25,000, but this could be enough for extension work.
- Credit cards are a no no, unless you get a 0% deal and are certain you can pay it off before the deal ends.
If you have difficulty in getting a loan or mortgage due to previous bad credit, then there are specialist lenders out there. Just be aware that you are likely to pay over the odds. Perhaps a couple of years building up a good credit rating again might be a better thing to do.
Good luck – because getting funding is hard these days. But shop around and take advantage of expert advice and you could be sunning yourself in your new conservatory by next summer!