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Better Have a Home Loan or Mortgage to Renovate?

Some tips for buying first home to be restructured with mortgage or loan and main differences between the two types of financing.

Better Have a Home Loan or Mortgage to Renovate?

In the case of a home purchase to be restructured, a major advantage is undoubtedly related to the possibility of applying for a mortgage or a loan to the banks in order to have the necessary amount to deal with the work. But how to choose between one type or another of funding? What amount of the mortgage to apply for? Choosing the right type and the amount of financing is never easy: often the costs for the renovation of the property turn out to be higher than expected. However, there are a few things to consider when choosing a home loan to restructure with respect to a loan:
  1. How to get a mortgage for renovation;
  2. First home purchase to be restructured: can the mortgage be claimed?
  3. How much to ask for a mortgage or loan;
  4. What rate to consider;
  5. Ancillary costs for the provision of financing;
  6. Required guarantees;
  7. Delivery time;
  8. Utility of a SAL mortgage;
  9. How to choose the duration;
  10. What are the expected tax deductions.
  11. How to Get a Mortgage for Renovation

For those who buy a home and face important work, it is advisable to consider the option of a mortgage to renovate the house. The procedure to follow is the same as the one you follow when you apply for a mortgage aimed at buying. However, delivery times can be different. The sum, in fact, can be made available in a single solution, at the beginning or at the end of the work, or divided into several tranches during the progress of the work.

To purchase a home to be restructured the mortgage must be requested by submitting, in addition to the canonical documents including those of identity and the tax return that compromise the ability to repay, also the land documents, the permits issued by the municipality that give the green light to the works and the estimates of the companies that will have to carry out the work. Generally, you can get an amount that covers a maximum of 80% of the value of the property.

The loan can be required both for small works (the so-called ordinary maintenance work), and when the works involve construction work that can affect both the interior and the exterior of the building (extraordinary maintenance), as well as for the so-called "great works", that is, works that substantially change the appearance of the property itself.

Buying First Home to Renovate Mortgage

When the property to be renovated (or to be built) is the main dwelling, you are entitled to the tax benefits provided for the first home such as the deduction for personal income tax purposes of 19% of the interest expense and ancillary charges up to a maximum of 4 thousand euros per year. The right to the tax deduction expires, however, if the work is not completed within the deadlines provided by the building documentation, unless the delay is due to delays of the municipal administration in issuing permits.

How Much to Ask for the Mortgage

An important aspect to assess is the amount to be requested from banks and credit companies. If the financing is smaller it will be preferable to move towards a personal loan, although, in fact, it is possible to claim up to about 70 thousand euros for a loan. If we aim for larger amounts, it is advisable to apply for a mortgage to restructure: in the case of a mortgage, however, no minimum values are required and generally the credit is granted from 30 thousand euros.

What Rate to Consider

The rate will need to be taken into account to assess and compare the different types of financing. In addition to the TAN (Nominal Annual Rate), the APR (Global Actual Annual Rate) will be assessed, which includes all financing costs, such as investigation or expert costs. For personal loans for restructuring, the best offers include an APR ranging from 5.44% to 7.98%. For a first home renovation mortgage, on the other hand, you have to choose between variable rate (best APR between 0.78% and 0.83%) or (best APR between 1.50% and 2.08%).

Additional Costs for Financing

In addition to the rates, there are also ancillary costs that can increase the cost of financing. For personal loans, these relate, for example, to the costs of investigation, collection and installment management, to notification and practical closure costs, stamp duty, and, if provided, any upfront or insurance costs. For renovation mortgages, on the other hand, additional costs are added to those mentioned above, including the cost of the expert (whose intervention costs, on average, between 200 and 300 euros, varying according to the number of appraisals to be carried out) and the act (the cost of which varies according to the value of the mortgage registration) that the notary will have to draw up to finalize the mortgage. Finally, the costs of fire and fire insurance, which is mandatory in order to obtain a mortgage refurbishment, must be taken into account. If your home is already covered by such a policy, you must verify that it has the required characteristics for the new financing, or if not you will need to take out a new one.

Required Guarantees

To apply for a restructuring mortgage, the applicant must have a fixed income sufficient to support the installments to be repaid. A real guarantee is also required for the mortgage, which is represented by the registration of the mortgage on the property that you want to renovate. The lender may request additional guarantees if it deems necessary.

Delivery Timelines

The time required to get a mortgage renovation is about the same as for the traditional mortgage for home purchase, and therefore are notoriously long; only to move from the instruction of the practice to the dispensing spend, on average, about 60 days. Personal loans, on the other hand, provide for faster disbursement times, which generally range from 24 hours to 15 days.

Usefulness of a SAL Mortgage

In the case of a restructuring mortgage, the bank can grant the required sum in a single solution, when the amount is quite small. If, on the other hand, the amount requested is high, or even higher than the value that the house has before the start of work, the lender may propose a mortgage SAL (Job Progress Status). It is a particular form of financing by which the bank divides the amount to be financed into several tranches, each issued only when an expert has ascertained the new value acquired by the property as the work progresses.

How to Choose the Duration

The term of a mortgage restructuring can be as long as 30-35 years, while for the loan the maximum term is 10 years. The choice of the duration of the loan should therefore be made on the basis of the amount you intend to apply for, the amount of the monthly installment that can be incurred and, not least, the age of the applicant. Generally longer the duration of the loan the higher the interest rate applied, but the weight of the monthly installment will be lower. The mortgage is in fact the best solution if you want to repay the debt in more than 10 years. If the duration is particularly short, it is more convenient to opt for a personal loan whose ancillary costs are lower.

Expected Tax Deductions

The first home renovation mortgage is undoubtedly cheaper from the point of view of tax breaks. If required for the main dwelling, in fact, it allows you to get an annual personal income tax deduction of 19% of the interest paid on the mortgage. Personal lending, on the other hand, does not qualify for any deduction. In addition, regardless of the type of financing required, the owner can enjoy the tax deductions related to the renovation, that is, an personal income tax deduction equal to 50% of the value of the intervention, up to a maximum of 96,000 euros, which will be applied in the 10 years following the restructuring. Of course, this benefit will only be available if the work is within the statutory requirements.

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