What You Need to Consider When Financing Your Renovation
Are the plans for your home renovation complete and all the costs calculated? Then all that's left to take care of is the financing. Read on to find out what factors play a role when the bank decides to grant a construction loan and what government funding is possible.
If your rough planning is done and the costs are calculated, your main task is to secure financing. Do you have enough equity? Or can you draw on capital from Pillar 3a? You may potentially be entitled to funding for energy-related renovations. If your own resources are scarce, you may be able to increase your mortgage or request a construction loan.
But what factors decide whether a bank issues a construction loan or increases your mortgage? The most relevant factors are the reasons for the renovation. Is it a matter of retaining or increasing value? Value-enhancing measures have a positive effect on the market value of your property. Depending on the size of your mortgage and the market value after the renovation, it may be possible to finance part of the redevelopment through a mortgage increase. However, renovations do not always lead to an increase in value. Real estate appraisers will calculate the future market value of a house or apartment before it is renovated.
Construction Loan for a Value-Enhancing Renovation
What the bank will co-finance depends on the background of the respective project. Even what is essentially a value-enhancing renovation does not automatically mean thatthe bank will help finance the desired investments. If you invest in a complete renovation of a fully usable older property, often you cannot count the entire investment amount as value-enhancing.
Before the start of the project, it is advisable to work out a specific financing solution with the bank. The bank will review the rough cost estimate and the client's current mortgage situation. We calculate the cost ceiling for the planned renovation depending on the property value and existing mortgage. How can equity be used, and is a credit increase possible and a good idea? If appraisers uncover discrepancies, it may be that your renovation project will have to be reviewed again.
Funding Energy-Related Renovations
If you are renovating your home to make it more energy-efficient, there are government funding programs to promote energy efficiency and renewable energies. These programs can help you to reduce costs. It's important that you seek information about them in advance as funding can vary depending on your canton or municipality. At energieschweiz.ch, you can find funding programs and subsidies for your area. Homeowners can save on heating and energy costs in the long term as a result of energy-related renovations.
It is important that you apply for funding in a timely manner, preferably in the planning phase. This is because if the renovation has already begun, it may be too late to be accepted for a funding program. What's more, you will still be able to make adjustments during the planning phase to ensure that the legal requirements for funding are fulfilled.