Bridge financing plus renovation, what's the best way?

Hello,

I have been reading along for a while but am currently a bit overwhelmed, so I would like to discuss my project with you. Everything is very exciting. So, I don’t have any offers yet but would like to get started and better understand what I need. Basically, I am selling my house in Bavaria and buying a fixer-upper in NRW. During the renovation, I would like to stay in the old house and therefore only sell it when the new house is reasonably habitable. What is the best way to proceed, and what questions should I ask the bank?

Allgemeines zu Euch:

[*]Who are you? F, 49 years old, no children, employed full-time

Einkommen- und Vermögenssituation:

[*]What income do you have (gross/net)? Around 4,500 net
[*]How much equity do you have? House, conservatively valued around 250k, unencumbered, 100k in stocks (another 80k remain as reserve)
[*]How much equity do you want to put into the house project? House and 100k = 350,000

My other costs are manageable, cats, a car, normal expenses for energy, etc., no loans, every month 1,500 euros and a variable amount go into savings plans depending on the situation.

Allgemeines zur Immobilie:

[*]How large is the plot? 850 sqm
[*]New build, old building (year built), house type? Year built 1978, unrenovated
[*]Garages? One
[*]How large is the house? (living space / usable space) 95 sqm, excluding cellar and expandable attic, all built year except for the oil low-temperature heating from 1999 (will be replaced, of course)
[*]What is the market value of the plot and house after completion? After renovation probably 350-400k

Bau- oder Kaufkosten:

[*]Additional acquisition costs (notary, court, property transfer tax, broker) 15,000 - 25,000
[*]Construction or purchase costs (incl. architect, structural engineer) 275,000
[*]Renovation and/or refurbishment costs I estimate at 100,000 to 150,000
[*]Financing costs (e.g. fees or commitment interest)
[*]Total costs about 450,000

Kostenzusammenstellung:

[*]Total costs 450,000
[*]Deductible equity 350,000
[*]Financing amount 100,000

Notwendige Kreditangaben:
(if multiple components, specify for all components; if multiple variants, please clearly distinguish):

[*]Loan amount 100,000
[*]Loan type (e.g. annuity loan, bullet loan, etc.) Bridge financing, renovation loan
[*]Loan term for the renovation ten to 15 years

What is your experience – I tend to go for bridge financing for the purchase and a renovation loan, possibly from the same provider hoping to get better conditions? Sounds totally doable, or am I overlooking something?

Thank you for your advice!

Mia

Hello Mia, my almost standard question: how do you come up with the estimated renovation costs and what do you plan to have done for it? I suspect little own contribution? That would be the first issue for me: clarification of the financing needs :)

If the bank also places the house in the price segment of the purchase price, why don’t you simply buy it with a loan (80-90% loan-to-value) and pay for the renovation from equity. This assumes that you can only list the purchase costs of the house for the financing and not already the renovation costs. 250k euro loan and then the rest from equity. Renovate at your own pace, move in, sell the old house, and done. With the existing equity, you are flexible in every direction.

Hello Mia, my almost standard question: how do you come up with the estimated renovation costs and what do you plan to have done? I assume little personal contribution? That would be the first topic for me: clarification of the financing needs :)

Hello Ysop,

Yes, correct assumption, I have rather niche skills. I’m really good at laying laminate and such, can install lamps, intercom systems and so on, and handle IT, but everything else is hardly feasible due to the distance. I was at the house with an expert on Monday. He will send me a detailed list, but roughly estimated:

[*]The roof is probably not from the original construction year, the structure is good, it can stay, but must be insulated (from the inside) if I want to use it. My brother trained as a roofer and has done this several times already, we will do it ourselves sometime. There is electricity on the top floor, radiators are connected and there is even a tiny toilet, which should make the conversion easier, at least I hope so.
[*]Heating: Will be replaced in the medium term, but it doesn't make sense right now because the tanks are still at least half full, presumably about 5,000 liters. I currently have a Geisha (heat pump) in my house, I want to get back to that.
[*]No moisture was visible; for thermal insulation, however, the house must be excavated and insulated. It is a small cuboid on a slope without bay windows or such (35k).
[*]Windows have to go, seven windows (14k) and a sliding door (5k).
[*]Front door (4k).
[*]Underfloor heating should be installed (20k), but the existing piping is probably suitable.
[*]Electrical system could remain, but I don't want that (10k).
[*]Drinking water installation new (10k).
[*]Shower bathroom (5 sqm) downstairs completely (10k).
[*]Kitchen (5 sqm, 10k).
[*]Floors (10k).
[*]The stairs are okay and just need a bit of care, the doors are standard and well preserved, can stay. The garden is great, the terrace is almost new. The garage is a prefabricated garage and will probably have to go.

In the medium term, photovoltaic systems should go on the roof, preferably together with the heat pump – it probably makes sense when I look at the consumption while the remaining oil is still running? Oh yes, and of course I would like to apply for KfW funding, but I have not included that. You never know.

As I said, a first rough estimate, what do you think, is that too low?

Mia

If the bank also classifies the house in the price segment of the purchase price, why don't you simply buy it through a loan (80-90% loan-to-value) and pay for the renovation out of equity? This assumes that you can only state the purchase costs of the house in the financing and not the renovation costs yet. 250k Euro loan and then the rest from equity. Renovate calmly, move in, sell the old house, and done. With the existing equity, you are capable of acting in all directions.

Well, you see, that’s why I’m here, because I simply didn’t think of that. Thanks, that’s a good tip! I’m afraid of the installment, but that’s stupid since there’s a bunch of money coming from the sale. I’m not good at looking at my finances objectively.

The bank’s valuation is at 250k, if I have to sell urgently, there is definitely room for improvement.

Well, you see, that’s why I’m here, because I simply didn’t think of that. Thanks, that’s a good tip! I’m afraid of the rate, but that’s just silly, since there’s a lot of money from the sale backing it up. I’m not good at looking at my finances soberly.

The bank’s valuation is at 250k if I urgently have to sell, so there’s definitely room for improvement.

I don’t mean the value of your existing property, but the mortgage lending value of the property to be newly acquired. If you take out a loan only for the purchase of the property, then you are only financing the purchase price. Renovation costs are excluded from that. What you need to know is that you can only really get a good loan contract on a property. Translated: you can finance the house today, but going back to the bank after 3 months to finance renovation costs will be harder. No bank likes to be in second lien position in the land register. That causes hefty discounts. That’s why it’s a tight spot if you can’t pay the renovation from your own capital. Then you need a complete calculation. You could basically buy "blind" and use your own estimate. The bank doesn’t care.
So if you only want to finance short-term, you can still get conditions today around 1.5% for 10 years. For example, 250k euros over 10 years with 1.5% nominal interest and 3% repayment amounts to approximately 937.50 euros monthly payment. Now add roughly 200k from your own capital for the rest of the purchase price, incidental purchase costs, and the renovation. If the renovation costs 50k more than you expect now, then you have to cover that from your own capital. According to your information, you can do that. Once you have moved, you can freely decide whether to sell, rent out, or keep it as a holiday home for yourself.