found a house, needs lots of work, how to get the extra £??

leebrooker

Hi guys,

Im new here, first post is a bit of a mouthful, forgive me

we have found a house, it was a repo and has been gutted. Structurally it seems sound, it is just in a mess, carpets, decor, internal doors etc.

The price is fair, however i will need an extra 25k on top of the purchase price (this includes my 25k equity, being used as a deposit for the new mortgage.)

The property is up for 155k, so i can only get 85% of this on a mortgage, which would leave me no money to do the place up.

Simply, is there any way i can get more than 85% as when it is livable, it will be worth 175-180k. Do or will mortgage cos take this into consideration when lending? is there any way i can release this extra money?

Thanks Lee

opinions4u

Ok, first of all your strategy is a high risk one. You're looking to spend a small fortune on a property without having access to the finance.

That said, it can be done. But do not commit to the purchase until the finance is in place.

What I suggest you do is make your offer, subject to survey and mortgage.

Then you should get estimates from reputable tradesmen for the work that needs doing.

Then you should apply for the mortgage, providing the lender with the estimates - telling them the work that you intend to do.

The lender should then instruct the valuer, providing him with copies of the estimates, and ask him to value based on current condition and improved condition.

They should then be able to make an offer of mortgage, which includes a retention that will only be released once the work has been completed. This should allow you to complete the purchase before the work has been done, but then release the improvement funds to you after the work is done.

Potential problems:

1) They will almost certainly only lend you 85% of the improvement to value that the work gives. So you still need to fund 15% of this yourself.

2) If the work costs £25k but only adds a lower amount, say £15k, to value they will only release 85% of the £15k (£12,750).

3) If the property is missing a kitchen or a bathroom the lender is unlikely to release the funds for the purchase until this has been installed.

4) If the estimate is on the low side, it is unlikely that the lender will be able to fund the extra costs in any way because the valuation figures won't stack up to the invoices.

5) A lender may refuse to release any funds until the work has been completed to the valuer's satisfaction. This will involve the valuer returning to the property (for a fee). Will your trandesmen be happy to do business on a "no payment until completion" basis? It is possible that a lender may authorise a stage payment - this would involve an interim visit from the valuer too, for yet another fee!

When I was a mortgage underwriter I was exceedingly cautious about advancing any funds to borrowers who didn't have the personal means to fund required improvements, or at the very least a decent sized contingency fund to cover unexpected costs, estimates lower than anticipated etc.

As I say, a risky strategy for a borrower without the means to fund the work. An there are risks for lenders too. Some may not be keen in the current market.

leebrooker

Bloodyhell, its good here!!!

Appreciate your time mate, thank you. i have to agree it is relitavely high risk. As it stands at the moment, my house is on for £140k, we owe £110k on the mortgage. Allowing for fees, that releases £25k in the equity. Biggest issue, is that this needs to go down as a deposit, on the new place, which we would hope to get at £150k. Allowing for stamp duty (if after 1st jan) that is all then tied up.

Affordability there, is fine. With regards to current value of other properties similar, it is slightly difficult. The one we are looking at is extended into a 5 bed, was a 3bed. Current, good condition 3bed properties, similar size (before extention) are around £160-165. My biggest issue, would be to find the £25k extra to refurbish the place. Personal loan is an option, but not one im keen on as it is so expencive.

I agree its risky, however, its not an investment in and out, we are looking to build a family home, while we (almost) can and live here for a long time.

massive project, but its now or never as they say.

Your point about the bathroom and kitchen, it has both of these, but no kitchen sink until next week. one potential buyer couldnt put an offer in as his lender wouldnt lend without a kitchen sink in place!

Lottebear

We found a house like this, we got a bulider around to have a look, he did tests very simlar to suveyor and his report was useful and told us how much it would cost to put right, we spoke to the agent would was selling it !!! cosmetic work only and they would reduce the price so we didn't go ahead.

The bulider cost £75 to go around a produce a written report, I would suggest you do the same.