After purchasing a property, funds put aside for its renovation may not be sufficient. Sometimes we are too optimistic about the expenses that await us, and what we were supposed to spend on renovating the premises absorb notary and tax charges.
Increasing your mortgage – is it possible?
When deciding on a mortgage, we usually have to specify the amount we will apply for at the beginning. However, it is not always possible to precisely calculate all the expenses awaiting us. This applies especially to such a long-term project as construction or renovation of a house, where the final cost of the investment may be higher than the one we assumed.
The increase in prices of building materials, subsequent works to be carried out or a poorly prepared cost estimate may result in running out of funds to complete the investment. The same applies to the purchase of real estate. If you decide to go to a secondary market, then the cost of refurbishment, the tax you have to pay, and notary fees may also mean that you will need extra cash. In this situation, we have two options: apply for another loan or apply for an increase in the mortgage.
Before you ask for a higher loan
In order to be sure that the bank will look more favorably upon our request, it is good to prepare properly for this process. It is worth being aware that the funds we have already put into a purchased or renovated property have contributed to increasing its value. Thus, we can increase our credit by additional funds. This is a much better solution than applying for the next commitment, which will increase the total cost of our debt. Banks do not specify how many times we can negotiate a loan agreement and apply for an increase in the amount initially received. Theoretically, we have this option throughout the duration of the contract, provided that we meet the conditions set by the bank. What does the bank consider? Applying for an increase in your mortgage looks very similar to applying for a loan. First of all,
In order for the bank to consider our application, we must submit such a request in writing. We should remember to attach documents confirming our employment and the amount of remuneration received. Before the bank grants us a higher loan, it will re-examine our creditworthiness (the one previously agreed was for a different amount and duration). This is to check whether we can pay the installment. A natural consequence of increasing your mortgage is a longer repayment period adequate to how much we “add” to your initial loan. However, we can opt out of this option if we think that, despite a higher installment, we will manage to regulate it within the prescribed period.
Take care of the loan
Credit collateral is also important. If we received it when the own contribution was not yet necessary, then today the bank will require 20% of its own contribution. If we do not have one and we do not have a chance to bypass our own contribution, then we will rather not receive credit. It is also worth checking how much we still have to pay, ie the current balance of our debt. If we repay the loan in a currency other than USD, the value of the liability should be recalculated referring to current exchange rates.
The bank will also look at whether the loan is properly serviced and whether we have repaid our liabilities on time. Sometimes, you may also need to evaluate the property. Depending on the specific bank, the loan value may not exceed 80 or 100% of the pledge. When applying for an increase in the mortgage, one must also take into account the fact that we will have to pay a commission. Its amount depends on how much you want to borrow from the bank. Depending on the financial institution, sometimes other charges related to the loan (eg margin) may also wait.