We got some good and bad news from the bank today. The good news is that the bank has approved the valuation on our house and we no longer are on the hook to immediately pay back a veritable crapload of euros for the renovation portion of our house loan. That is great, but it is also linked to the bad news.
The loans manager we were dealing with has left the bank and we discovered there were some inconsistencies and misinterpretations of some kind, as we were never meant to pay back the loan if we didn't reach the evaluation. We found out a week ago that if the evaluation didn't reach the required amount, we would have to find the entire secondary loan amount by June 21st, which would have been impossible.
The deal we had agreed to, was that if we didn't reach the evaluation required, we would be stuck with a higher interest rate on the renovation portion of the loan and if we did reach the number needed, that part of the loan would be changed to the same terms as our main loan - which also has a 10 year interest collar on it. It seems that this wasn't conveyed into the system and we are going to have to have some more negotiations. For now though, it doesn't matter because the interest rates are so low that it is almost free. But I suspect, that isn't going to be the case for the next 8.5 years of the collar and beyond for the length of the loan.
The reason we had to do it this way in the first place, is that in quite new Finnish law, they are able to loan a maximum of 85% of the value of the house in total, even if it requires renovation. So, let's say the value of a house is 200,000 and requires 100,000 in renovation work, the maximum the bank can loan is 170,000. This means that to buy the house, it will require a deposit of 30,000 and the 100,000 for renovation would have to come out of pocket. There aren't many people who have 100,000 in cash available, so old houses have been dropping in value, snapped up by developers and turned into overpriced apartments and flats.
While we could have easily got a loan for more than the house and renovation combined, they would only give us that if we bought one of the overpriced apartments or move-in ready places. This is snakey, but kind of makes sense in the way that they are protected for resale if we become unfit and can't pay - but what it means is that unless already having the cash to renovate, it is pretty much impossible to put sweat equity into a house through renovation. It also creates a "trapped" market for the developers to sell into, one where the per square meter costs are very high and the owners don't even own the land, plus have to pay maintenance fees.
Conveniently, the banks are also able to push much larger loans to homebuyers, especially the young who have very little savings available to do any renovations at all, but with so much "free" debt, they can get into more expensive homes. This has a long term effect too, as because less people can put in sweat equity, at some point when the house is sold, they will likely have less gain from it (if any once adjusted for inflation and maintenance), meaning that the loan they will need for their next home will be larger than someone's who was able to get some additional capital out of selling their previous place. This can be very significant over time and, it also has ramifications for the development of generational wealth, with those without, falling even further behind those with.
The risk for us was very low when we first got into this and with 11 months to get completed, things seemed pretty good. But it was just prior to Corona becoing a thing and the subsequent restrictions. There was no way to predict what was actually going to happen once it started, as everything changed, including getting tradespeople for key work and then when we did, often having them cancel (or we having to cancel) due to someone having a runny nose. We ended up getting an extension for 5 months, but by then, we were so far behind schedule because of Corona factors like material and fittings shortages, we were unlikely to make the cut off.
We are still not finished by a longshot, but we are at least at a stage that what we have done so far has been enough for the approval and now, we can start looking at the terms of the loans and what was originally agreed. Though at the end of the day, it isn't such a big drama as the renovation portion of the loan is only 20% of the total value, as what we did was pay the minimum deposit we could (15%) for the home loan and held back the left over profits from selling our apartment, to push into the renovation, as well as all disposable income over the last 1+ years.
Of course, things would have been easier if we had done what I originally suggested to my wife, which was take 10% of the loan money and BTFD back in March 2020, but she wouldn't agree to that. If we had done that and sold at the top, 40% of the total loan amounts would have been covered. Yet, it was one of those things we both needed to agree upon and she is less risk-seeking than myself.
Houses are not very good investments, but they tend to be "okay" at retaining value, and since people need a place to live anyway, it is not a bad deal. Interestingly, because the current interest rates are so low, we are paying about 30% less for the mortgage than we would pay for a smallish rental apartment. And if we were to rent out our house now, we could probably get about double the mortgage, as houses of this size for rent are becoming very scarce. Ironically, because so many of them have been sold cheap, bulldozed and turned into small and overpriced apartments, as no one can get the money for renovation.
Now, for the same price as moving into a duplex on a small piece of rented land, we have a large house on land we own, with a garden and a loan that is 25% less than it would have been if we had done what the bank wanted us to do. While we still have a lot of finishing renovation to do and hopefully we will get a lot done in the next couple weeks so that summer is more enjoyable, at least we don't have the ticking loan bomb to contend with now. It has been a pretty busy and financially tight year to get to this stage, but hopefully in the next few years we will be in a better position for it and down the track, our daughter will benefit from our stress today.
I just have to find the rest of the money needed to do what's left.
Taraz
[ Gen1: Hive ]
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Dude, that's all super frustrating... although I'm sure you're aware that if you had bought the dip the entire crypto market would have tanked and we'd be sending you cardboard boxes internationally to live in. My partner has changed her tune a little in regards to crypto and now wishes we had bought a whole Bitcoin back when they were $3k... up until recently she's been very anti-crypto.
I'm sure you're aware of a similar situation in Australia (or at least Melbourne) where land and new builds were available for foreign investment while existing houses weren't... so you'd have situations where in the very same block a new house would go for over a million but a similar sized older house that needed some work would barely get $400k.
I think a lot of these regulations and policies try to fix one problem and end up causing others... hope you find the money and get through the next little bit. If you release a sexy calendar I'll buy one to help!
90% likely! It takes time for people to come around and if my wife had her way so far, I think she would have sold most. Risk isn't for everyone, especially those not interested (enough) to learn about the industry.
The current state for non-home owners wanting to buy in Australia is insane. I read that in Sydney, the average increase has been 120K since February! That means the requied additional deposit amount is 24K to be collected in four months.
edit: also, 33B in house loans were taken in April alone....
I will call it:
"Man about the house"
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You should both come to Bulgaria and buy village houses 15 to 30 times cheaper than that. You should also wait for me to buy them first so that I can...eh...never mind.
Maybe we can have a whole Hive village around here at some point. Even a small town.
Kidding aside, I heard they are auctioning a piece of real estate as an NFT already. It had something to do with LLCs and getting it out of any country's jurisdiction first. Corporate law FTW.
P.S.
The upvote was for the title of the calendar. Classic stuff. Men At Work was a famous photo project before it was an Aussie music band.
:D
I think there are some Finns that have moved to Bulgaria over the last few years to take advantage of housing. Hard to get people to renovate there though, from what I hear.
Sounds like they had a particular market in mind :D
Not sure if they have corruption or incompetence in mind but those are both here to stay and thrive from the looks of it ;)
Both. Finns are generally "honest" in some way, because they are pretty much face value kinds of people. They struggle when conditions they have agreed to, change.
You know why I have not left the country while many people my age have? Because of ideas similar to what I read in Dune as a teenager. The best soldiers being trained in the harshest of environments. Like with interpreting Einstein's formula you recently mentioned, I have learned to interpret and apply all kinds of ideas in all kinds of contexts. I've decided to apply that harsh environment theory to many aspects of my life. I've made it my philosophy to swim against the current so that I can build more and more survival skills.
Of course, I do slack from time to time. And lose some of the gains in the process. Changing that is the real challenge now.
Hahahaha, that's the perfect title!
We've had 3 apartments in Australia... we've sold 2... one we essentially sold for what we paid for it, one we sold for a profit and the other we're still holding onto because it's worth 200k less than what we bought it for... apartments are such a gamble because you never know if a new block of apartments is going to go up nearby when you sell... so then everyone goes for a house with land... and you end up with 33B in house loans in a month.
I keep waiting for the housing market to totally crash in Australia and it just doesn't.
200K less? you definitely bought the top on that one!
Yeah... for 2 years we were making so much money on rent... and then a stack of apartment buildings went up and a major project in the area completed and every single apartment in the entire region was suddenly worth a fraction of their initial sale price. That was 8ish years ago and things have been slowly creeping back up... so, ah, maybe in 16 years we can break even?
Congratulations and glad that you guys got the approval.
Surely if the deal is re-negotiated with the bank, they have to allow some lee-way due to the Covid scenario?
Maybe they can extend the loan time period?
It isn't the loan time that is the issue, it is the conditions of the loan itself. After a successful evaluation, it was meant to fall under the same terms as the main loan, but that doesn't seem to be the case now, so once we can, we will have to go through all of the contracts and emails to recheck. It isn't the end of the world, but still quite annoying.
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Maybe these things happen for the better Taraz, as they say that in every dark cloud one has to look for opportunities. Hopefully it will not cost you guys anything extra, but with your experience there might be some savings or relief in this.
Our power will be cut off now at 4 pm.
Are there rolling blackouts?
Oh yeah, they call it Level 4 and we had a long one this morning. Another one now at 4pm and another one at 10pm. There is a mix-up though and we are not sure that the 4pm one will happen.
So I will shut down in a short while and we will wait to see, as it might be at 5pm.
The communications are a mess and it seems that Hive is also in a mess with the low vote values.
Such is life lately hahaha.
Damn and he was a crooked one after all. You have done well though and no worries just increase your work load on Hive lol. We had a crook who sold us a lemon as the under pinning wasn't reported until after we had moved in. I tried to fight the bank on this but had no luck. Sold the lemon to the next person, but that took almost a year of headaches and stress once we were ready to move on. That same property is 3 x more expensive and has sold twice already in only 17 years so it would have been a good investment after all.
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There are some pretty decent deals around here for those with the cash, but most "normal" people don't have enough capital to get in and those with the potential collateral, aren't interested. When I first came here, I almost bought an apartment in a crappy neighbourhood close to the city very cheap, but couldn't get the small loan I needed as I was a foreigner and a freelance trainer - that property is up 3x as well now.
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That new law sounds kind of crazy: they are essentially ignoring that the renovation is going to increase the value of the property (and hence the appraised value of the property that serves as collateral for the loan).
Yes, it is crazy. There are some very nice old homes in very good areas that have been left to rot, as they they can't sell them and many are protected and can't be bulldozed.
It goes all the way down the chain though, for example, a friend of mine took a loss on an apartment he had for 10 years, because it needed about 10,000 worth of renovation to the bathroom and the kinds of people who are in the market for that type of place, just don't have the cash upfront. Instead, an investor bought it cheap, fixed it up and rented it out to someone who can't afford to get into a move in ready place and isn't able to get a renovation loan to fix something up - so, they are stuck as a renter, instead of an owner.
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@tarazkp
I think housing and lands are good investments because they never really depreciate in value.
Apart from the fact that these house developers tend to sell an apartment for an overpriced amount after developing, I think land and real estate stocks (REIT) are best to invest in
Your wife had her reason for her opinion though, only she knew why she didn't agree to your initial plan.
however, congrats for the part of the good news
I hope you find a lot easier way to handle the loan
I am sure the banks have invested, after all, they back the developers too.
Fear :)
It'll be okay in regards to the loan, at least in the short term with low interest rates :)
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it's alright, women have their worries
You're great person, you'll figure
That entire snakey paragraph sounds like a conspiracy theory to me.
Yay for making approval at least? I have no idea what was going on there ^_^;
It does sound like a conspiracy, but I am seen as crazy here - the government and banks would never make decisions that advantage themselves.
Yep. Approval is good, now we can worry a little less and not be hammered on the schedule.
My kids are at the age where my friends and I are mildly exasperated with the things they find to get offended about, but I'm pretty sure our parents and some of our peers are similarly exasperated when we're thinking completely unreasonable things like that.
I remember talking to the outlaws about some of the more invasive laws coming in and mother in law was absolutely adamant and would not under any circumstances be told otherwise about all the things that could go wrong because "they wouldn't do that!" why not? "Because they just wouldn't!"
Literal quotes.
So yeh.
That sucks you are having to go through all of that. I hope they are able to get it sorted out for you to a point that is agreeable to you. Sometimes places like that can be really rigid about things even if the error is on their end.
Preaching to the choir there!
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Banks probably shouldn't be too ad hoc with their practices.
Make copies of all the house documents you have, read them carefully, highlight the important sections that state the renovation loan if passing inspection would be rolled into the same terms as the house loan.
Do not let the bank tell you about ARM Loans (Adjustable Rate Mortgage), you want fixed rate for fixed amount of years and no balloon refinance payment terms.
You already have a contract with them any changes need to be accepted by YOU, they can not force the change. If you have a housing expert or know of a housing lawyer, (like them or not they are sometimes needed), have them go over the original loan paper work for both the house and the renovation.
Do not sign anything at that first meeting, tell them you need to discuss the changes with your lawyer first and you will be back next week to let them know of the outcome from your meeting. (put them on edge, no one, not even banks really like lawyers, so use that fear against them, lawyer or no lawyer).
I think that the main issue has been that it wasn't entered into their system correctly, but everything is automated. I think once we look at the contracts together it will be alright, but these things always take time and effort - which sucks having to do it again.
As for the good news, I am very glad it is the case. ¡Congratz!
However as for the bad news... Sheesh! was that an oral pact or something?
How comes you barely discovered a week ago there were some inconsistencies and misinterpretations of some kind in the deal?
Did not both parties have a written contract in which all the details of the negotiation were clearly described?
Uhm, I find this pretty unusual. But knowing you, most probable that I'm missing something important here.
Because of Corona, there were limitations on who was doing what. Yes, we have a contract, but it seems that the details of the contract were not entered correctly into the system, meaning that now we have to work out what is going on, rather than it all just automatically happening.
Phew! alright, if at least you already have all that officially in writing, I suppose you will be shielded from any potential inconvenience in some way. Go ahead. ¡Blow up the system! :)