You just bought an apartment and want to renovate it? Or maybe a leaky installation needs intervention in your home? You can finance any renovation with a loan. Depending on the amount you need and what you want to spend it on, you can use various types of financing.
What loan for home renovation?
The cost of renovating an apartment or house can be really high. Market information shows that Poles spend on average between 20,000 and 80,000 on modernization. Depending on the amount we need and what we intend to do with it, we will have two forms of financing to choose from. When considering a loan, we can choose a cash loan or a mortgage for renovation.
The loan for finishing the flat usually amounts to lower amounts, on average a statistical Pole spends up to 48,000 dollars . These costs usually include financing the purchase of furniture, panels, tiles, etc. For expenses of this order, the easiest option is to choose a cash loan. Getting a cash loan from the bank can take up to 2 weeks. A maximum of USD 200,000 can be obtained.
A home renovation loan can take up a lot. Such renovations usually involve thermomodernization (insulation) of the house, replacement of windows, roof or purchase of a central heating furnace. As you know, such changes will consume much more cash. Fortunately, they can be financed with a renovation mortgage, in which amounts are much higher than in the case of an average cash loan. The great downside of this type of solution is low availability and very large bureaucracy. Obtaining such a loan may take up to 3 months and fail. Therefore, such a solution is most often used by large investors – construction companies, housing associations, etc.
Cash loan or mortgage?
When choosing these two loans, you need to think about the pros and cons of each of them. The scope of financing renovation will also be its scope.
A cash loan can be used as a loan to renovate an apartment. It will be more difficult to spend such a loan on finishing a large mansion.
In the mortgage you finance the purchase of a house, you will find restrictions that the cash obtained from it can only be spent on property, plant and equipment permanently, ie windows, roof, and wall insulation. Some banks point out that you can also spend money on a built-in kitchen or bathroom fittings, but this is rare.
The amounts we get in cash loans are much lower than in mortgage loans. The interest rate on cash loans ranges from 6% to 10%. The mortgage has a much lower interest rate, ie from 4% to 5.5%. If we consider the commission, then at first glance the mortgage is cheaper than cash. However, the issue is in the repayment period. It is not possible for a renovation mortgage loan with a 30-year repayment period to be cheaper than a 5-year cash loan. Therefore, the total cost of the loan also depends on the duration of the loan.
The repayment period for these loans also varies: you will receive a mortgage for 25-30 years, cash loan is usually granted for 10 years. The length of the loan period and the interest rate are associated with the collateral loan.
The cash loan is usually granted without collateral, the mortgage is secured by real estate. Therefore, it is important that there is no mortgage entry in the land and mortgage register for the benefit of another lender. A mortgage loan for renovation is granted by banks for 60-90% of the property value.
If you finance the purchase of real estate with a mortgage, you will be able to spend a maximum of 15% -30% of the property’s value on renovation. If you have only 20% of the value of the property for the purchase, you still need 80% for the purchase and let’s assume 30% for renovation, it is easy to conclude that you will not get cash for renovation under this loan. When taking out a loan, it is worth including it in the amount for unexpected expenses. You need to accurately estimate the costs of renovation, because if there is not enough money during the works, it may not be possible to increase the loan amount or it may take several weeks.
Therefore, depending on what you want to finance from the renovation loan, we need to think about what pays off. Below you will find information on how these two loans differ – it will be easier for you to choose the right one.
The best loan for apartment renovation up to USD 200,000
I won’t surprise you if I say a cash loan. Such a loan can be obtained quickly, and if you have good credit standing, its amount can reach up to USD 200,000. This is definitely enough for renovation and purchase of equipment.
If you want to finance a smaller home renovation or purchase of “movable equipment” such as furniture, a cash loan is a sensible choice. You can get it faster and it has no mortgage restrictions. You can freely dispose of the cash you receive from the bank.
If you need quick cash for renovation up to USD 15,000 and you don’t have creditworthiness, installment loans online are a popular solution, which I will write about in a moment.
If you are at the stage of buying an apartment and you plan to renovate it later, you can use a mortgage, in which part of the amount you can spend on renovation. Greenhand Bank has such a loan. However, the cost of renovation cannot usually exceed 30% of the total loan amount.
Quick loan for renovation up to USD 15,000
A quick loan for housing renovation is not necessarily a bank loan. Most often blog readers in urgent renovations use non-bank loans. In such companies, you can get cash in 1 day. At the moment they are safe (subject to the anti-usury act) and their interest rate is 10%. It is worth looking for such loans where the commission is low, so that their cost will not be significantly different from a bank loan. At the moment, such an offer has, for example, Hapipo loans, which I reviewed here. If you want to see the offer of other loan companies, check my installment loan comparison engine.
Especially if you do not have very good scoring in BIK and you want to improve your housing situation, you can use online loans in installments.
The best loan for home renovation over USD 200,000
Due to higher expenses for home renovation above 200,000 thousand USD, a better or actually the only solution will be a mortgage. Its cost should be more attractive than with a cash loan assuming 10 years repayment. If you are interested in such a loan, you can see what banks currently have offers in the mortgage comparison website.
What to remember when deciding to choose a mortgage for renovation:
- The renovation loan is settled on the basis of a cost estimate (most often it is done on bank print);
- You document it with invoices or photos;
- The estimate may include expenses for the permanent equipment of an apartment or house, eg built-in kitchen furniture or permanent bathroom equipment. You won’t buy furniture for him;
- The bank may want to carry out an inspection verifying the state of repair works;
- The loan amount is paid out in tranches, similar to a home loan;
- The renovation cannot last forever – the tranches are paid for a maximum of two years.