My wife and I am now in the process of finalising the kitchen, sanitary, parkett, etc. for the new house that we have reserved. We realised that we are exceeding the budget and will need some additional money to cover for the additional expenses.
We checked with the bank whether they can include the additional amount in the mortgage and they are fine to do it (affordability, etc.)
As the notary is few weeks away, we have 2 options -
update the purchase price to include the additional amount (obviously needs to be agreed with the seller)
keep the additional amount separate that will be covered by the bank to pay to the seller at the time of the handover.
Any experiences, pros/cons of the options, etc. are welcome! Thank you!
If you have extra costs the payment of those is defined in the construction / promotion contract (as it seems to be a new construction). I’ve never seen the purchase price being updated to include them. On the other hand what is usual is that they ask you to pay some of the costs after some project milestones and the rest upon delivery.
There’s no issue to have a bank finance them especially if they increase the value of the property.
It is worth checking fiscal aspects.
In my canton (VD), the tax value of a house (for wealth tax) is 80% of the purchasing price, so option 1 would make you pay more taxes for all future years of ownership.
You specify all that before even seeing the notary? Interesting. In my case, that only happened later, phase by phase during construction and was billed separately.
Don’t know any buyer that stayed within budget when buying a new construction
We estimated the expected additional cost and made sure the bank includes that, and then some* in the mortgage note. But the contract with the seller was signed with the original base price. I guess that’s option 2.
*We didn’t use up the whole credit line, but it’s good to have some buffer, whether for during construction or later on. If you want to increase it later, it comes with hassle and fees.
Besides calculation for property taxes, my notary fees were also calculated on the purchase price, so I don’t see a reason to not go with option 2.
edit: For the mortgage calculation, the bank uses their own value, same for the building insurance, so I can’t think where the base price in the contract would matter, otherwise.
The payment of the extra costs was not defined anywhere; we just assumed we need to pay the extra costs using our equity. Talking to a few people around - I figured these costs can also be financed.
Also, the payment milestones in our case are rather simple - 10% on notary and the rest on handover.
Speaking with the bank - they suggest option 1 is better, however, they are willing to work with option 2 as well.
Yea, due to various reasons, we have a gap of 3 months between the reservation and the notary. During this time, we have managed to finalise the things that add to to cost (kitchen, sanitary, parkett, etc.) and so have the details of the additional costs.
Yup, that’s option 2.
As the bank would pay the mortgage directly to the seller, how would this credit line/buffer amount work? Does the bank pay the mortgage amount on the original base price to the seller and the additional costs (based on bills) directly to you? Or does the seller get the mortgage+credit line money from the bank and give back the unused amount to you?
True that! the real estate industry knows how to squeeze money from the buyers.
Is this done by a promoter or is it your own project ? If this is a promoter they usually define how extra costs are to be paid simply because they add their fee on top ^^. I’m surprised you don t have those guidelines…
Credit line is likely the wrong translation. It’s a normal part of the mortgage and signed by the notary. Basically, the maximum amount the mortgage can be from the bank’s perspective. If you speak German, Schuldbrief and Grundpfandrecht would be the terms used.
It then depends on the payment plan. In a temporary construction mortgage, the bank should release the payments as you get billed, whether it’s part of the base price or extra cost.
I had a regular mortgage, right away and the bank only paid the mortgage directly. But only after, or rather as part of the proper transfer of the property, where 80% was due.
My spouse handled those payments, I think we paid some bills due in between by ourself, and didn’t even check with the bank.
You’d have to wait for other answers or check with the bank for more details on how they handle it if you don’t want to pay those in-between invoices by yourself.
It is by a promoter. Just read over the details again; the below is mentioned..
Any additional buyer requests must be settled with the final payment before the building is handed over.
Nothing more specified - can be directly or from the bank as long as it is done before handover.
What is the ‘fee on top’? The total contractor has a surcharge of 15% on the additional costs if that is what you are referring to, but I guess that 15% does not go to the promoter/seller..
Yes that’s exactly what I mentioned, in this case you are free to wait till the end I guess, lucky you :). The 15% is indeed standard and it goes to the promoter / architect to cover changes to the plans / risks / guarantee. The contractor doing the extra job will be paid by the extra cost ^^, the 15% comes on top.
That sounds pretty much like they invoice due at hand-over, and the bank would pick it up as part of their mortgage payment, assuming your mortgage note covers the amount. Well, or maybe 80% of it or whatever is your setup.
Depending how you pick you stuff, if the kitchen studio quotes 10k over budget, they’ll add 11.5k. Or their quote already includes this 15% cut for the developer, you get the idea.
For these bills that you paid yourself, did you get reimbursed by the bank later?
Consider the base purchase price of 1Mn (800k mortgage and 200k equity) and additional costs of 20k.
Option 1 - Purchase price updated to 1.02Mn (816k mortgage and 204k equity) - seems straightforward
Option 2 (similar to you) - Mortgage amount of 800k; you paid the bills (20k) to the seller and the bank pays you 20k at the property transfer?
Option 2 (variant) - Mortgage amount of 800k; seller pays 20k when bills are due and the bank pays the seller 20k separately at the property transfer?
Just trying to think of scenarios. You are right though - I have the discussion with the bank and the seller on this later in the week; wanted to check here before that.
Exactly this I am trying to ascertain. The discussion with the bank was to finance the 80% of the original base price. Now with the additional costs added - all these questions and scenarios.
We didn’t ask and told them we got it, as the mortgage amount without that was a nice round number and we had the funds available. That’s why we didn’t max out the amount the bank would have paid / borrowed, but would have some buffer to increase it in the future.
But I guess they would have, or paid it even in the first place. That’s the detail I’m not sure about.
In my case I advanced the funds as we were required to pay most of it 6 months before handover. The bank then reimbursed me the amount (minus the required equity on the additional costs) when the mortgage got issued.
That’s important. If they’ll lend you 800k max in your example, that’s the end of the discussion and any extra costs are on you. If they’d extend it to 816 or even up to some 900 just in case, it’s a different matter.
Note that either of these amounts paid would be your mortgage from the bank.
I’m curious now, please update after your talks with the bank.
Had a detailed discussion with the bank mortgage advisor. He initially wasn’t sure and checked with his regional manager.
They are fine with no update to the purchase price and reimbursing the extra costs to the seller (preferred option) or to me at the time of the mortgage disbursement. They would need the proof of payment to release the funds.
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and we had the funds available. That’s why we didn’t max out the amount the bank would have paid / borrowed, but would have some buffer to increase it in the future.