Renovation loan: renovate at the best conditions!

A renovation loan makes it possible to beautify your own four walls with renovations. Whether it’s a simple painter, laying a new floor or a complete refurbishment, this loan gives consumers the financial means to design their home or make repairs. The following guide shows what to look for when borrowing and how it can be cheaply renovated.

The most important thing about the renovation loan:

  • The renovation loan is a purpose-built loan that provides the financial means to beautify or repair a property.
  • In most cases, applicants with a regular income do not need to provide any additional collateral for the renovation loan.
  • A renovation loan is open to tenants and property owners alike.

What is a renovation loan?

Basically, a renovation loan is a classic installment loan. This means that the applicant receives the financial means for the renovation from the bank and in return pays interest to the bank. For repayment of the loan, borrowers receive monthly installments. The financing amount for a loan for the renovation is usually between 1,000 and 75,000 euros.

The difference to the regular installment loans is that this form of loan is earmarked. The borrower must use the money made available to him for renovations to a particular property and may not spend it on other purchases such as a new television. Borrowers are usually required to provide the bank with evidence of expenses and, therefore, on the earmarked use of the loan.

What initially sounds like a disadvantage for the borrower, however, achieves the opposite: The banks provide their customers for the renovation of the property lower-interest loans with better terms available. The renovation loan is significantly cheaper than a classic installment loan without earmarking.

Renovation or renovation: What is the difference?

Renovation or renovation: What is the difference?

Renovation and renovation are often used as synonyms. There is a significant difference between a renovation and a renovation, which also affects the credit:

Renovate (beautify)

Renovation works are characterized by the fact that they are not necessarily necessary. They aim to beautify the home and eliminate visual defects. An example of this is the replacement of floor coverings. Basically, the old floor can still use, but the homeowner feels it as a blemish. In this case, the exchange is not necessary, but is used to improve the living.

Refurbish (repair)

The difference between a renovation and a refurbishment is that a refurbishment measure is a necessity. The works will be carried out if a damage or a defect in the apartment is to be eliminated. Thus, the homeowner or tenant does not want to eliminate forcibly or not exclusively optical blemishes, but to restore or improve the quality of the property. Renovation measures include, for example, the removal of mold or the repair of leaky doors and windows.

With regard to the effects of reorganization, namely the preservation of value of a property, real estate owners belong primarily to the applicants. Tenants are rarely willing to take remedial action on their own account , as it is usually not part of their duties. But in principle you also have access to the restructuring loan.

Note: The renovation loan is also called the rehabilitation loan, although both terms have a significant difference. For lending, however, it does not matter whether the loan is used to beautify the home or for repair work.

Is there a difference to the modernization loan?

Is there a difference to the modernization loan?

Yes, there is a big difference between renovation / refurbishment and modernization. Modernization measures aim to save energy or water, create new living space or significantly increase the value of a property. This includes, for example, upgrading with solar systems.

In comparison to the renovation loan, borrowers usually apply for higher lump sums for the modernization loan. They also have the opportunity to receive a low-interest and subsidized loan from Bank if the construction measures lead to the Efficiency House standard, for example.

Tip: The public sector grants particularly low-interest loans through for certain modernization and refurbishment measures. These include, for example, the replacement of windows and doors to improve energy efficiency or burglary protection, the installation of energy-efficient heating or the elderly / handicapped-friendly renovation of a bathroom.

What collateral is needed for a renovation loan?

A big advantage of the renovation loan is that it is awarded very unbureaucratically. For the majority of banks, income is sufficient as collateral, which is why the prospective borrower will have to provide proof of income over the past three months. Most credit institutions refrain from registering a mortgage when applying for a renovation loan, which in any case is only available to applicants who own the property to be renovated.

Further collateral is only required by banks if the financing amount is too high in relation to regular income and available cash. In some circumstances, the bank may require proof of equity.

How to apply for a renovation loan?

The homeowners and renter can request the credit for the renovation online or at their house bank. Basically, an online loan offers the advantage that many different providers can be compared. The applicant is not limited to the offer of the house bank, but can use the best conditions of other credit institutions. In order to cheaply renovate, consumers should check the bids from other banks online before starting the renovation loan. How this works, borrowers learn below:

Step 1: Determination of financing needs

First, borrowers need to find out what the actual funding needs are. It may be necessary for the applicant to provide the Bank with a renovation or rehabilitation plan listing all expenses incurred.

The best method of costing is to get cost estimates for your planned actions. Many lenders also request this evidence for the review of the loan application.

Tip: In principle, borrowers should pay part of the renovation with equity to lower the cost of the loan. However, as renovations as well as renovations can always lead to unexpected difficulties and additional work, consumers should not invest all their reserves. It is advisable to reserve some of the funds for unforeseen events.

Step 2: Select runtime

Over the term – together with the loan amount – the monthly charge is defined. This means that the shorter the duration of the contract, the higher the repayment and vice versa. Applicants who choose a short term must therefore have sufficient financial resources to cover the high monthly installments.

However, the term should not be too short. While a low rate will have a positive impact on the budget available, it will incur additional costs. Because with a long term, the interest burden increases and the renovation loan becomes more expensive.

Tip: A listing of all monthly earnings and spend helps to determine the maximum amount for the monthly installment. Costs of living and financial reserves must also be taken into account.

Step 3: Get an offer

Applicants use the loan calculator to obtain a favorable offer for a reorganization loan. In these, they enter the loan characteristics such as the purpose, the financing requirement and the term. Within a few seconds, the comparison calculator determines the lowest-interest offer free of charge and without obligation.

Step 4: Apply for a renovation loan

After providing the best offer, interested parties can take advantage of this. For this, the associated form with the personal details must be filled in, which can be easily implemented on the computer.

Subsequently, the identity of the applicant is determined via a video call. The applicant holds the identity card or passport in front of the camera and can be identified by the responsible employee. At the end, the application will be signed electronically and the document will be forwarded directly to the bank with all necessary documents. Depending on the financing requirements and the bank, the following documents must be submitted:

  • Salary statements for the last three months
  • Possibly. Proof of ownership of the property
  • Rehabilitation plan and cost estimates of the craftsmen
  • evidence of collateral or guarantees may be required

Step 5: Receive loans and cheaply renovate

If the loan application is completed and the bank has all the necessary documents, the applicant receives the loan on the same day. The credit for the renovation or renovation can be used immediately.

When and for whom is the renovation loan suitable?

The renovation loan is in most cases the cheapest way to renovate a house or apartment. It can be applied easily, is low-interest and allows financing up to 75,000 euros. The loan is therefore suitable for any tenant or homeowner who wishes to have refurbishment or renovation carried out in the appropriate financial framework.

The renovation loan is not suitable if very high expenses are necessary or modernization measures are planned. In this case, the modernization loan promoted by Bank is the better option , provided that the conditions for state support are met.

Note: An alternative to the renovation loan is the regular home loan, where real estate owners usually benefit from lower interest rates. However, the term of this loan is longer and the conditions for the application are more stringent. For example, many banks require real estate owners to know that the property used for collateral is virtually free of debt. Sometimes due to this fact the earmarked loan for the refurbishment is the better solution.