Can work be financed with a mortgage?

Whether in old or new real estate, it is common to carry out work to adapt a purchased property to one’s taste and needs. But is it possible to finance this work with a mortgage? What are the steps to follow in this case? The point with our experts.

Real estate loan to finance its works, advantages

It is possible to take out a home loan to finance development work on a new or old house.

This option has four main advantages:

  • A relatively long repayment period with small monthly payments. Remember that home loans are repaid over a minimum period of 7 years, with a minimum amount of 75,000 euros;
  • A better interest rate. The rates applied for real estate loans are lower than those applied for consumer credit and for other loans;
  • THE loan repayment can be deferred until the date you move into the new accommodation. This will save you from having to pay rent and credit interest at the same time;
  • The reimbursement ofa single loan instead of combining two, a mortgage and a work loan.

The conditions for taking out a mortgage loan intended to finance works

The conditions for taking out a home loan intended, partially or totally, to finance works are stricter than those of a standard works loan.

The debt ratio

The bank will be above all vigilant on the total amount to be borrowed. The objective is to ensure that the latter is in accordance with your debt capacity. In other words, the share of your income devoted to the repayment of your credits should not exceed approximately one third of the sum of your monthly income.

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The justificatives, prerequisites for your mortgage application

As part of your procedure for applying for a mortgage to finance work, various supporting documents will be required. This may in particular be quotes and purchase orders issued by the companies selected to carry out the work.

If your credit application is accepted, the funds intended for the work will be kept by the bank. They will be gradually transferred to the professionals working on the site upon presentation of invoices.

In other words, it is not possible to take out a mortgage and do the work yourself in your house. The renovation must be carried out by professionals.

A work loan in addition to a mortgage, Good or bad idea ?

If the work to be done in your new home is not complex or if it is inexpensive, you can make two loans: a home loan and a work loan.

You should indeed know that a work loan works like a classic consumer credit. If your request is accepted, you will receive the funds directly in your account and can take care of their management yourself. You will be able to carry out the work if you have the skills and the availability.

Moreover, the amount of insurance to be paid is lower on this part of real estate financing. In particular, you can remove certain guarantees such as death and disability insurance.

In addition, if you subscribe to two different loans with the same bank, the repayment conditions of the mortgage can be smoothed. For example, you can pay a lower monthly payment during the first years, the time to finish repaying the work credit.

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Remember, however, that the works credit is a very short-term financing. The interest rate applied is therefore higher than that of a mortgage. It is therefore advisable to study all the options carefully before committing yourself.

Do a simulation before committing

Depending on whether you opt for a mortgage taking into account the acquisition of the property and the works and a mortgage with a works loan, the repayment terms are different.

In order to find the most suitable formula for your situation, the ideal is therefore to proceed as follows:

Estimate the cost of the work

The amount of work depends mainly on the type of work and the level of their difficulty. If it is a major renovation with work on the structure, the roof, the walls or the windows, the average budget to be planned is 1,200 euros per m2.

For intermediate renovations, count between 400 and 600 euros per m2. The budget then varies according to the location and the type of materials used.

In all cases, compare several quotes before deciding. There are also online tools that allow you to make an accurate estimate of the amount of your work.

Do an online home loan simulation

Performing a real estate loan simulation online with the Postal Bank allows you to calculate the amount you can borrow according to your income. In seconds you can test the different scenarios to determine which works best for you.

What to remember?

Although the conditions for granting are stricter, it is possible to finance renovation work with a mortgage. Similarly, it is quite possible to take out a work loan in addition to your mortgage. This option is particularly advantageous for small jobs.

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Finally, before choosing one or the other of these financial arrangements, perform online simulations.

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