Should you request a loan for remodeling and then sell the property?

Are you thinking of selling your property, but first want to remodel it to increase the price of its sale? If you have planned to finance this operation with a loan, we invite you to read this article, where we indicate how convenient it is to request a loan for remodeling and then sell the property.

What is a credit for remodeling?

What is a credit for remodeling?

A remodeling loan is a personal loan granted by a financial institution, which you can only use to expand your own property. This is a home equity loan, which is the type in which the property to be remodeled works as guarantor of the payment.

The foregoing is very important that you understand it, since being the real estate mortgaged, you will not be able to sell it before releasing said mortgage. That is, you will not be able to sell the property until you fully cancel the debt generated by the remodeling credit.

What should you consider before applying for the loan?

What should you consider before applying for the loan?

There are two fundamental aspects that you must weigh before applying for the remodeling loan. The first aspect is the numbers involved in the operation, since you do the same exclusively to obtain greater profit in the sale. The second is the additional difficulty that the mortgage means in the sales process.

The two are detailed below.

Income and expenses

Income and expenses

The proposed operation generates both expenses and revenues, and it is all a matter of determining whether the former compensate the latter.

You should consider the following expenses:

  • Administrative expenses That generates the processing of the documents that you must present when applying for the credit, and when releasing the mortgage.
  • Insurance Surely, the financial institution that grants the loan will ask you as a requirement to take one or more insurance. These will be canceled by you before you benefit from it.
  • Loan service payment. Once you receive the loan, you must pay it. Remember that you must include here the interest generated, and the administrative expenses of the debt. And the mortgage release costs before expiration.

Regarding income, there is only one.

  • Sale of the property. The price of the property must be such that it compensates the expenses and produces some additional benefit.

Sale process

Before making the sale you must release the mortgage, which you must indicate to the buyer. To guide you with other details of this operation, see the article, can I sell a mortgaged house?

How to evaluate the convenience of using credit for remodeling?

How to evaluate the convenience of using credit for remodeling?

It is very simple, it is a question that you perform a simple operation: estimate the income and expenses, and then divide the first among the second. If you get a ratio greater than 1.30, the option may be beneficial.

Why do we recommend a coefficient of 1.30, that is, that the gain in the operation exceeds 30%? The reason is that there are several risks in this operation, which you must compensate with a higher profit. These risks are:

  • Remodeling can be more expensive than projected, and you will then have to assume that cost difference.
  • Since you first need to release the mortgage, it will be more complicated to find a buyer interested in your property.

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