The specificity of loans for renovation and extension. One of the most common types of mortgage loans are loans to finance expenses related to the renovation and extension of an apartment or house. The basic conditions for obtaining a loan for renovation and extension are the same as for loans for the purchase of an apartment. These loans, however, differ significantly from the previously discussed loans for an apartment and a house for three reasons:
1) the loan amount is usually much smaller – most loans for an apartment and a house are between PLN 100,000 and 600,000, their average value currently exceeds PLN 200,000, while loans for renovation and extension are often granted for sums less than 50,000 PLN 4 (sometimes they amount to several thousand zlotys),
2) the maximum loan term is much shorter, it can be 5-10 years, although some banks agree to repayment even within 20 years,
3) banks usually offer only loans in PLN for these purposes.
If a loan for a natural person is granted for less than PLN 80,000, it is considered a consumer loan. The law stipulates that additional rules apply to consumer credit to protect borrowers’ interests, including:
• the client’s right to ‘change his mind’ within 10 days of signing the contract – during that time he may cancel the loan without incurring additional costs5,
• exemption of the customer from commission costs for loan repayment ahead of schedule.
Banks’ documentation requirements are easy to meet for loans for renovation and extension.
Most often, banks require the submission of the following documents : a notarial deed or other document confirming the acquisition of rights to real estate, a cost estimate (made by the borrower), a current excerpt from the land and mortgage register, a statement of earnings and a statement on the client’s financial obligations.
If the bank avoids excessive risk, the credit inspector will visit the apartment, including to determine the reality of the cost estimate. When the borrower intends to move the walls, build the terrace etc., the inspector may request the submission of an appropriate administrative permit. When building an attic, such permission is necessary, and the period of settling the formalities associated with obtaining it may be very long (in multi-apartment buildings one should also take into account the possibility of refusing to issue the permit).
Credit cost and financing of undocumented expenses.
The basic rules for calculating the cost of a loan for renovation or extension by a bank are the same as for a loan for the purchase of an apartment. Credit commission and other fees are also the same.
For renovation and extension works, troublesome matters include undocumented expenses – very often when renovating an apartment, the client outsources a large part of the work to people who will not issue any invoices. To attract customers, some banks agree to allocate a significant portion of the loan to the so-called any purpose – then the borrower can receive a large amount in cash, but this is usually too small in relation to the needs. In this situation, the borrower must be prepared for the fact that part of the expenses will have to be borne from his own money or from an additional high- interest cash loan