Buying a house - the best approach for our specific case

Now it is my turn to ask some questions as regards the best strategy in terms of financing possible transaction on real estate market… Of course there is a question to buy or to rent, but in our case we have already decided that we want to become owners, so let’s put it aside.

We have never been so close, even though we are on the 2nd place of people being currently considered by the owner. This means that we should really start preparing, even though nothing is certain yet.

We are considering two options:

  1. Buying the house and doing some not very big refreshments.
  2. Buying the house and doing some big renovation project, before we move into it.

The 2nd option is the preferred one, but it of course depends on the money. After some first quick checks, it seems we may be fine with both buying and renovating, but it would rather mean that we reach our maximum affordability. Hence some questions from my side:

  1. Is it possible to take one mortgage for buying and then the second one for renovation?
  2. Is it possible to take those mortgages in two different places?
  3. Maybe we should rather opt from one big mortgage from the beginning? (this can be tricky as we won’t have time to work on the project beforehand due to time pressure…)
  4. What about using 2nd and 3rd pillar - can we use them in full considering that we have never paid anything in addition to the 2nd pillar and total of 2nd and 3rd pillars are less than 10% of the transaction?

That’s all for now… Thanks in advance for any remarks!

We have bought a house which we renovated before moving it.

In our case we pre-discussed with the bank and we got a bigger loan to cover the renovation. This was backed by our architect’s budget. The first part of the loan was drawn to pay the purchase of the house and the remaining was drawn sporadically over the course of 1 year to pay invoices of the builders. We were giving the bank the invoices signed and checked by our architect and the bank was paying them directly.

An important thing to note is that technically our bank would finance only value adding renovation or renovation of items that have passed their useful life. This means that in theory would not finance you to fit golden faucets neither to renovate a 5 year old kitchen only because you didn’t like it. In practise though they took a pragmatic approach and instead of checking every invoice what they did was that they estimated that only 2/3rds of the renovation would be value adding. This means that the 1/3rd had to be paid via equity however instead of doing that we paid our 20% cash and to bridge the gap we have pledged our 3rd pillar (thus increasing the collateral value i.e. justifying a higher loan).
The interest we got was the same as for a normal mortgage (i.e. no more due to the renovation).

To your questions:

  1. Even though as i told you we got one loan from the beginning I understand that you can request a releverage later on to cover for renovations.
  2. I would assume no, since mortgages have rankings i.e. one bank would rank before the other one in case of foreclosure and I assume no bank would accept lending you money while being ranked second.
  3. As described this is what I did. I gave them a rough budget from my architect however I was allowed to change the specifications later on. I was actually even allowed to slightly increase the mortgage as we changed our plans and went for a bigger renovation. I am saying that you dont need to have everything super detailed and finalised before going to the bank, a basic budget (i guess from an architect) would do.
  4. We did not touch 2nd pillar but i understand you can either withdraw or pledge it similar to 3rd pillar. As I said we pledged our 3rd pillar instead of drawing it as it remains invested and hopefully will yield better returns than the interest we are paying.

In general I would recommend speaking with an architect even before buying the house to give you an estimate of the renovation costs. Have him visit the house for a better assessment. Ours did this for free on the understanding that if we bought the house we would do the renovation together. Don’t know how familiar you are with the market but renovations in CH are crazy expensive. And from what he tells you assume a 15% - 20% more.

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Sure but both combined can not exceed the affordability calculation. It makes sense to directly get the full mortgage.

Unlikely the bank will want to have a proof of debt (Schuldbrief) which gets entered in the property register. And usually two banks don’t participate for the same property.

I would recommend that, you don’t have to use all the money right away. But having the proof of debt for the whole amount will make it easier for the bank to issue the whole mortgage.

Absolutely possible. As @Moustakalis mentioned I would today also recommend to pledge instead of withdraw the 3rd Pillar so you can keep investing it. (might come with restrictions tho).

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Many thanks for your replies!

We are already in contact with an architect, good to know that it will be sufficient to come to the bank just with rough calculation. I was also afraid to get worse conditions for the renovation part, so thanks again for reassuring us :). Finally, we think about changing a lot (adding a floor…or changing the heating system etc.), so I guess this should come under “value adding” topic. Now the question about our affordability vs. estimated renovation costs (plus 15-20% buffer…). Might be a bit problematic :D.

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