Loan Options for Financing a Loft Conversion
A loft conversion is an excellent way to leverage the existing space of your house before thinking of adding more. And if you reside in an urban area, extending down or up might be your only choice for adding more space to your property.
An increasing number of homeowners are digging down or building upwards to build more space since they cannot manage to move to a larger property. However, what are the viable options for funding this project?
Should you get a personal loan, borrow money from your existing creditor, or remortgage? There’s plenty to consider when planning a loft conversion, from the costs to design. For a little help, here’s how you can finance a home extension. Read on!
Through peer-to-peer lending, you could borrow money from complete strangers. Usually, this is a finance option organized on behalf of private investors that lets people borrow money for development projects.
Of course, with the intent of getting more competitive ROI (return on investments) for investors compared to traditional investment products and savings. The advantages of this option are having fixed interest rates for the loan term and quickly knowing if you’ve secured the funds.
However, the drawbacks include pitching to prospective investors through a P2P platform. Plus, you will not secure or get the most competitive interest rates necessarily.
The most efficient and popular way of borrowing money is to remortgage, especially if you own your property or home. This financing option is usually more affordable than bridging finance. However, you need to have ample income to substantiate you can manage to make additional repayments.
The amount of money you can borrow relies on your credit rating, the principal equity of your home, and how much the suggested home improvement or loft conversion might add to the value of your property.
Moreover, remortgaging might be the perfect chance to obtain an affordable deal on your new loan or existing loan. However, the drawback is the arrangement fee, which can cost at least thousands of dollars.
Make sure to consider any penalties and charges for repaying the advance if you sell the house early or reduce the loan.
If, for instance, you don’t own a home or a property and have no assets or savings, for your deposit, you’ll need to use personal loans. However, keep in mind that it’s a costly way to borrow money.
Thus, make sure you pick a mortgage lender that provides the highest advance possible to reduce interest payments. Personal loans are ideal for loans of at least 27,000 dollars repaid within 1 to 10 years.
The interest payments and sum rely upon your personal circumstances, particularly your credit score. You can take out a personal loan on your bank, online lenders such as Credit Ninja Finance, or credit unions.
Home Improvement Loans
This financing option can either be unsecured or secured. Unsecured loans are ideal for smaller projects, which are repaid over a few years, typically at a fixed interest rate. Secured loans are ideal for more expensive and larger projects.
For homeowners, secured home improvement loans are like second mortgages. As such, it entails passing the same strict checks made on the first-time applying for a mortgage. In particular, strong credit history and regular, verifiable income.
When you use your house as collateral, your bank would normally provide repayment over 1 to 25 years. A lot of banks offer as much as 500,000 dollars at around 3.5 to 5.0 percent interest. However, there’s no large discount for smaller sums paid back over short periods.
Similar to a traditional mortgage, borrowers will need to pay at least a 25 percent deposit for a renovation mortgage. Also, they must meet or match up to the income criteria. Renovation mortgages cover renovation projects with funds carried out in gradual stages when project criteria are met:
- Second fix
- Installing services
- Making it watertight
- Securing the property
If you have enough principal equity in your property to finance the loft conversion, as well as the purchase, then you can use a bridging loan. Bridging loans are simpler and uncomplicated to arrange compared to an advance or a mortgage, particularly for homeowners with a modest income.
Moreover, this type of loan bridges the gap between completing the project and selling an existing property. But keep in mind that the interest rate for a bridging loan is typically high. Therefore, it’s very costly to extend the loan duration.
Also, legal and admin fees can be expensive. Ultimately, ensure to use a bridging creditor managed by the Financial Conduct Authority.
Before you start a loft conversion, it’s ideal to approach several creditors first because arranging finance can take a few weeks. Having funding like a personal loan in place will mean that you can rapidly act when you get the correct opportunity.