***First time buyer - House renovation mortgage advice***

Scottc91

Good evening,
I am sorry if this has been posted before, but I have searched the internet and can only find years old information and I have spoken to 2 banks and 2 other mortgage advisors, who give different answers.


Basically, if you buy a house for less than it's worth, can you get a mortgage on the house value and use the difference to pay for renovation?
E.g House is valued at 150k (now, not future value) and they accept an offer for 135k. Can I get a mortgage for 150K and use the extra to fund renovation? or will I only be able to lend on the purchase price?


Advice I have been given is you can... and on the other side, they say you can only lend on the lowest value whether that is the house price or the purchase price.


If you can't, how would one go about funding a house renovation? All I can think of is getting a separate loan or just having the savings to do so in the first place (which we don't).


Thanks


Scott

sammyjammy

Your adviser is wrong, you cannot.

Scottc91

Thanks for the reply. One advisor and bank said you can and another advisor and bank said you can't. I assumed you couldn't to be honest

Kayalana99

Well straight away normally you need 10% deposit. So if you buy a 150k at 135k you'd need 13.5k making the mortgage around 121k on a 150k property.

At this stage what you could do (although I'm sure they won't take to kindly to you doing this straight away) is get a re-mortgage back up to 135k - as you still need 10% of the deposit in the house - so could potentially get 14k out of it - this is in theory as you may also attract more fees/exit fees with re mortgaging etc and if the mortgage company agree it's worth 150k - when really, is it actually worth that in it's current state as they won't base it on what it will be worth when you're done.

I'm 99% sure you can't take cash out in the way you've asked anyway - I can see why it would make sense too but I've never heard of it in pratice.

Kayalana99

+ yes either loan or fund it yourself. If you have a high income then a loan of 15k is do-able.

Scottc91

Kayalana99 wrote: »

Well straight away normally you need 10% deposit. So if you buy a 150k at 135k you'd need 13.5k making the mortgage around 121k on a 150k property.

At this stage what you could do (although I'm sure they won't take to kindly to you doing this straight away) is get a re-mortgage back up to 135k - as you still need 10% of the deposit in the house - so could potentially get 14k out of it - this is in theory as you may also attract more fees/exit fees with re mortgaging etc and if the mortgage company agree it's worth 150k - when really, is it actually worth that in it's current state as they won't base it on what it will be worth when you're done.

I'm 99% sure you can't take cash out in the way you've asked anyway - I can see why it would make sense too but I've never heard of it in pratice.

I see what you mean, that would be rather cheeky but I guess when you re-mortgage it they will include the extra value missing as I paid 15k less. Is there a minimum time before you can remortgage?
This is all hypothetical, I think it would be too risky to do what you said encase I get shafted and basically left with an empty house and no money to renovate ha

Kayalana99

Scottc91 wrote: »

I see what you mean, that would be rather cheeky but I guess when you re-mortgage it they will include the extra value missing as I paid 15k less. Is there a minimum time before you can remortgage?
This is all hypothetical, I think it would be too risky to do what you said encase I get shafted and basically left with an empty house and no money to renovate ha

I don't see why there would be really but obviously most mortgage companies have high exit fees....mine is £300 now but the first year I'm sure it was around £1.5k as it goes down as it gets nearer to the mortgage term. You may...may...find that even if you think it's worth 150k the mortgage company may not agree because it has actually just sold for 135k in front of them too.

Scottc91

Kayalana99 wrote: »

I don't see why there would be really but obviously most mortgage companies have high exit fees....mine is £300 now but the first year I'm sure it was around £1.5k as it goes down as it gets nearer to the mortgage term. You may...may...find that even if you think it's worth 150k the mortgage company may not agree because it has actually just sold for 135k in front of them too.

Yeah I have been told a saying "the value of the house is what you pay for it". But when the surveyor goes in and values the house.. if it is less than the purchase price, the mortgage company will only lend the valuation cost. If it is valued higher than the purchase price, wouldn't they record it's value on the document, even if it is higher than the purchase price?
I am guessing if I went for the re-mortgage, I would get it re-valued and hopefully it comes back higher than what I paid and mortgage higher price?

ACG

Your question gets asked on here every couple of months.

Lenders will go off the lower of the valuation or purchase price - there are some exceptions, but it is normally to do with buying off family.

Kayalana99

Scottc91 wrote: »

Yeah I have been told a saying "the value of the house is what you pay for it". But when the surveyor goes in and values the house.. if it is less than the purchase price, the mortgage company will only lend the valuation cost. If it is valued higher than the purchase price, wouldn't they record it's value on the document, even if it is higher than the purchase price?
I am guessing if I went for the re-mortgage, I would get it re-valued and hopefully it comes back higher than what I paid and mortgage higher price?

I might be wrong, but I heard somewhere that the valuation the mortgage company is never higher then the asking price - it's just the done thing in the industry that because they are only interested in it being worth the price it's being sold for, that they only put that as the highest price even if it's worth a lot more.

Obviously if it's not worth 135k then they would put a lower figure though.

The problem with re-vaulation is it can be based on what property has been sold for what price in the area - and since yours just sold for 135k it could be said to bring the property value down in the area (maybe not by much, but they will take it into consideration what it sold for)

goodwithsaving

It is very rare for somewhere to receive a valuation higher than the purchase price, and that's in a buoyant market let alone the current one.
Renovate as you save.