Co-finance The Costs Of Modernization

Even before many a real estate acquisition is certain that something urgently needs to be done to the building, ie modernization work is pending. Accordingly, more capital must be available from the beginning, after all, windows, roof tiles etc. have their price. The question of many prospective buyers is whether and on what terms this capital can be obtained.

Often it is easily possible to finance not only the acquisition of real estate, but also a modernization. However lurk several pitfalls that need to know. Below we want to show what is important.

Distinction between modernization and renovation


First, it is important to know that the term modernization is often misunderstood. Often it is used as a substitute for the renovation, which includes more beauty corrections, such as laying laminate flooring or wallpapering the walls. Such measures have no value-enhancing effect. No matter how much money goes into a renovation, from the perspective of the bank, the object is still worth the same in the end.

The modernization includes measures that have a value-enhancing effect. For example, if you install new windows, insulate exterior walls or install a new heating system, your object is modernized.

Financial readiness of the banks

financial loan

Whether and to what extent such measures are financed depends entirely on the respective bank. Most banks finance half of the modernization measures, ie the other half have to be financed from own resources. However, this need not necessarily be the case, and some banks are also funding modernization in full.

Impact on the loan

Impact on the loan

It does not do much good for many people if a bank only covers half of the modernization costs – in the end, the entire modernization has to be paid for somehow. Accordingly, it is usually not a problem to finance this amount. But when it comes to the determination of the loan (ratio between equity and debt capital), only half of the modernization costs are recognized as adding value, depending on the regulations of the respective bank. But because the other half of the cost is also funded, the mortgage deteriorates. This, in turn, may result in a lending limit being exceeded and thus a slightly higher loan interest rate for all funding.