Home Renovation Loan

After buying the new house in Singapore, the first thing that comes to mind is- Renovation!!

Of course, everyone wants to have a beautiful and lively house.Besides, you had spent all of your money in buying and you left with nothing!! 

Here, you ran out of ideas on how to renovate the house.  

As renovation consumes a lot of money and getting it from some relatives or friends is not going to work!!

Why?

Because it demands an immeasurable amount of money!!

Hence, you will have to resort to a home renovation loan to fund the renovation project.

The home renovation loan provides you the funds needed for fixing the home.  These loan types can take the form of mortgage loans, that is, upper funds with built-in fixed tools or personal loans. According to the type of loan you have, you are required to show proof that the money is either paid to the contractor or is spent on the home. 

Renovation Loan Defined

A renovation loan Singapore is a loan dedicated to finance your home renovation. As they are used exclusively for renovations, the interest in renovation loans is less as compared to personal loans. The bank acknowledges that you have at least a house and you are using the money to increase the worth of that asset.

The lower interest rate of the renovation loans brings some constraints, like, limitations on the type of improvements you can leverage tp pay loan online, and assuring that this money will be paid directly to contractors or interior designers.

Usually, the loan repayment period is within one and five years, and the highest amount you can acquire is approximately six times the yearly salary or $30,000, whichever is less.

That is if the income is $3,000 per month, then, you can only lend up to $18,000. Also if your salary is $6,000 per month, you can only lend up to S$30,000 rather than $36,000.

While examining various loan packages, check whether the handling/admin/processing fees are included in the loan amount.   If your loan requires it to be paid to various vendors in stages, the bank can charge additional fees.

DBS Bank also imposes a 1% mandatory fee on the insurance loan amount to deal with outstanding loans in case of permanent total disability or death.

Where renovation loans can be used?

We clearly have mentioned above that the renovation loan is restricted to be used.  You cannot use the amount you get to other purposes; it is solely meant for:

Please note that the cost of purchasing furniture and electrical appliances (which can be as high as tens of thousands of dollars) is not included in the renovation loan. You have to acquire the different forms of financing for that- like some other loan or interest-free installment plan.

General things to know before applying for Renovation Loan

Understand the loan eligibility

Although the specific details may vary somewhat for various loan providers, the general eligibility requirement of renovation loans includes:

Citizenship

You have to be either a Permanent Resident or Singaporean. 

Age

Every bank needs the application to be of 21 years at least. 50 to 65 years is the upper age limit.

Income

For a single loan application, several banks need the applicant to own a yearly income of US$24,000, and the annual income of a joint application is US$36,000.

Ownership 

You have to be either the proper owner or close relative (sibling, child, spouse, or parent). 

Loan tenure time 

Many local banks generally provide flexible terms of repayment that might last form one to five years.

How much can you obtain from a home renovation loan?

It can also be referred to as the loan quantum or principal. The amount you can acquire from the bank mainly relies on the plan offered.

The homeowners who intend to get money to buy the property must monitor the time of the renovation loan as it can discover if you obtain funds for the new home. 

According to the Total Debt Servicing Ratio (TDSR) framework, at most three-fifths of the monthly income can be utilized to repay the loan. It is the ratio of the total money to a monthly salary that cannot surpass 60%.

Like; if the monthly earnings are $2,000, then, the TDSR is of $1,200 limit. The car loan of $800 and a renovation loan of $700 per month means the $1,500 (TDSR of 75%), reveals that you are not liable to apply for the housing loan.

Find the interest rate types

According to the renovation loan packages, the interest rates must be computed separately. Some of the banks the bank renovation loans calculate interest on the monthly rest rates, whereas, some adopt for the fixed rate. 

Simply speaking, for  loans calculated at a monthly interest rate, interest will be imposed according to the outstanding amount at the beginning of each calendar month; for fixed-rate loans, it depends solely on the original borrowed amount. Below table shows the difference between these two:

Monthly Rest rate Fixed-rate
Begin:

 Renovation loan of $10,000 acquired with monthly repayment

Interest on $10,000 Interest on $10,000
Initial repayment Interest on $10,000 Interest on $10,000
Second repayment Interest on $10,000 Interest on $ 9,000 (considering $1000 paid on initial payment)

Pay attention to handling and other fees

Extra charges that you could arise when carrying out the home renovation loan. It includes prepayment fees, disbursement fees, and processing fees.

Handling/Processing fees

This fee is taken by the banks as the charges of gathering information required to get a loan, generally of 1% of the sanctioned loan amount.

Disbursement fees

It is charged when the loan proceeds are transferred to the renovation contractor by means of the cashier orders.

Late payment fees 

These fees are charged when the installments go late.

Cancellation fees 

It is generally 1% of the undrawn charges of the canceled loan.

Insurance premium

This is 1% of the approved loan amount that assures that the renovation loan is embraced in case of an adverse occurrence.

Look into other bonuses or other benefits

Several banks offer small to large amounts of bonuses when you get a renovation loan with them. Some of the banks do not charge for the initial three cashier orders to the renovation contractor and others provide some discount off on the processing fee if applied online. And, some of the banks provide a less interest rate on the renovation loan when you consider them for the home loan as well.

What is the best time to have a home renovation loan?

The money for renovating the home must be considered only when you are sure that it will either improve the property value or decrease the long term cost.

Most of the home renovation projects improve the property value with a large amount as compared to that you use on renovations. Basements, Attic insulation, front door, and bathroom remodels are more valued while repairing. When you are improving the home value before selling, then assure that you are spending the money where it is worth it.

It is beneficial to check out the renovation loans when the repair saves the money for a long time or convert your living place as safer. New siding or updated window or roof repairs are some of the project categories that are included in this.  This makes your home more energy efficient and weatherproof.  

The critical step in choosing the home renovation loan is finding the risks and other essential prospects. On an all, find the equity.  If you invest less money in the house, you are at greater risk of defaulting on the renovation loan.

The next mistake is that you invest largely in retrofitting. You have considered these improvements to make your house too expensive compared to similar houses nearby.  But, be conscious about the higher range of the home sales price in your region, or you can discover that you have broken the home marketability by pushing it past buyer expectations.

Also, do not be in a hurry to renovate. Get in touch with different lenders, find out their rates, and keep in mind that the remodels are more time consuming and expensive than you even think. You must assure that your finances can manage the responsibility of other home loans. 

Working of the home renovation loan?

If you are purchasing the home that demands repairs, then, several loan options are there. The working of the renovation loan largely relies on the financing type you choose to apply. Leading home renovation loan prospects has the below programs:

Fannie Mae HomeStyle®

This type of loan is the single close loan that incorporates the home repairs cost in the total loan amount. It could be leveraged for the alterations that the homeowner needs or the repairs that the appraiser needs. Also, it could be used for paying cosmetic or structural repairs.

Borrowers prefer this loan as they have to administer just one loan, fewer interest rates (cost of repairs and purchase price), and one monthly payment. It enables you to choose either a 15 or 30-year contract term, with the flexible rate options. 

The final loan amount with this loan largely depends on the home projected value after the completion of the repairs. 

FHA 203(k)

This loan has almost the same features as the HomeStyle®. However, it is for the buyers with fewer credit scores. Generally, it is costlier as FHA mortgages have more mortgage insurance premiums for buyers who are likely to adopt the small down payments. This charges the initial fee which includes the overall loan principal. 

The categorization of this loan is into two; streamline and full. Picking the one relies on the position of the property. This loan is meant for the primary residence which requires significant or serious repairs whereas the significant loan is leveraged to get the minor repairs with an amount of $35,000.

EZ “C”onventional

It could be used with the existing mortgages for the homes that are not structured. This type of loan adds more property value. EZ “C”onventional is an amalgamation of the borrower-selected and appraiser-required renovations.

Jumbo Renovation

It is similar to the EZ “C”onventional, however, the main difference lies in that it is meant for the costlier homes that are not included in the home repair loans. This type of loan could be meant for the projects that need repairs or appraisers as per the borrower. Remember that the repairs increases the property value and are non-structural.

USDA Rural Development Home Repair Loans

This loan is provided by the Rural development program that assists the home buyers to have a simple house and assures safety. It covers electrical improvements, new appliances, plumbing, windows, roofing, siding, foundations, and more updates for safety and health reasons. Program eligibility is dependent on rural location and income.

How to apply for the Renovation loan

Step 1# Do not hurry!! Check out the quality of the home renovation before making some sorts of plans for home renovation. Do not forget that there are some income and age requirements and citizenship (we have mentioned the same above). Know how much you can get and are you willing to accept or afford the monthly repayment amounts. It will permit you to outline whether the renovation is within the budget or not.

Step 2# After knowing the budget constraints, you can get the best contractor or interior designer. When the scope of the work finalizes, take the invoice from your vendor. Also, you need to have the quotation before employing the renovation loan.

Step 3# As of now, you got the invoice, so, gather the other required documents that you require for applying for the renovation loan. It includes the income statements (payslips/CPF statements), NRIC, invoice, and proof showing you are the owner of the home. If you are planning to apply for the renovation loan on the phone, online, or at the branch, you have to submit the documents prior to the approval of the loan.

Wrapping Up

Choose the the home renovation loans now and build your dream home!!  

Though, there are several personal loans online that can give you the amount of your desire,  although, it is always advantageous to choose the home renovation loan. 

Yes, it has some restrictions, but, it is worth it!!

Go through this article and grasp the mandatory. In case, you are stuck somewhere than in  the comment below.

We are here to help you out!!

Thanks for sparing your precious time for reading!!

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