What does it mean?
The term reorganization loan is not legally defined and is therefore used in different contexts. In general, we speak of a reorganization loan in connection with a bank loan, which serves the increase in value or value retention of a property. The borrower is the real estate owner. Tenants who want to paper their apartment again, are not potential restructuring borrowers, but have to take a normal consumer loan.
Consider changes in value
Anyone who thinks of refurbishing their house and wants to finance it with a borrowing, should first clarify the question of what exactly is to do and whether this work only serve to preserve the value of the property or if they lead to an increase in value. A new exterior paint does not change the value, a new exterior finish with facade insulation quite significant. Once you have decided what is necessary and desirable for yourself, you should ask yourself what resources are available and whether they are appropriate or worth increasing.
Borrowing always leads to a financial burden, the amount of which should be acceptable in the context of the general living situation. Property owners are often judged too generous by the banks.
Loans for renovations to buildings are granted in three ways:
- The classic reorganization loan – an earmarked installment loan similar to the “ordinary” consumer loan with regularly more favorable terms
- The traditional mortgage lending with land register entry and Baukreditzinsen – at higher sums the cheapest option
- The usual installment loan for everyone.
The earmarking is the actual feature of the classic restructuring loan. When setting up the terms of the contract, the amount of the loan and the customer relationship play a decisive role. It always finances a specific project – ie the new garden fence or a new exterior painting – and to what extent the cost estimates are part of the loan agreement is part of the negotiations with the bank. Difficulties always arise here when the renovation work is to be performed partly or wholly in-house and only the materials are financed through loans.
Normally, the performance of an artisan’s service is confirmed by the acceptance, this is not possible with own contribution. Here you will often fall back on the normal, not earmarked, installment loan.
Costs for land registry
If financing through a credit secured by a land charge is considered, account must be taken of the cost of entry in the land register in the calculation. Normally, a cost advantage arises from the lower interest burden only at clearly five-digit loan amounts. Also should not already be registered another mortgage.
The public sector encourages reorganization measures through low-interest loans. These are provided by the federal bank HeW on the commercial banks.
Good to know:
Unfortunately, in practice, many banks regard the granting of credit by HeW as damaging to their own business and do not point out this possibility to the customer or involve it only in the case of larger financing.
What should you pay attention to when renovating?
The first step is always the definition of the project and the definition of the scope of the work. Many things can be done together easier or are often offered as a package by the craft companies: roofers offer almost always gutters and the corresponding drain pipes, painters also build the conservatory, etc.
But since everything is regulated by law in Germany, you should always be assured and if necessary, it can be confirmed that the project is not objectionable in the context of the laws. Sometimes neighboring rights are also affected or the monument protection authorities. Only when the project has been approved in every way, you should go for financing.
For approved loans that are not called, the bank may require a provisioning fee.
HeW financing options
Anyone planning a reorganization measure that includes energy measures, converts the unused space or commercial space into living space or concerns a building monument should always inform themselves about financing options offered by HeW and should not be intimidated by the banks. When it comes to energetic measures, excellent contact persons are the heating and / or solar companies offering the corresponding products. They regularly know best the promotional practice of HeW and many offer their products as an eligible package.
Some also help with financing: this may or may not be beneficial to the client. In the case of historical monuments, a trusting cooperation with the competent monument protection authority helps, which sometimes also helps with a grant or a promotional loan.
It should be noted, however, that at the current level of interest rates the calculable financial advantage of promotional loans is often negligible and has to be weighed against the higher administrative burden.
Only the landlord can deduct interest for construction from the tax. Craftsmen’s costs for renovations can be claimed directly for tax purposes, but only up to a maximum of € 6,000 per year and only invoices paid by bank transfer for labor costs, including directions, but not for material costs. However, this only applies to the self-occupied apartment or the self-used house and only for conservation: the existing garage can be repainted but not instead of the manually operated door an electric built-in.
One avoids annoyance – not only with the tax office, also with the craftsmen, if one insists already with the offer on the separation of labor costs and material costs. A problem arises regularly in a two-family house, in which an apartment is used by the owner.
Here, the procedure should be discussed with the tax office. As practicable here separate accounting circles with two loans have been found.
The credit rating decides
An application for a reorganization loan is only a loan application: for the bank, the creditworthiness of the customer is crucial. This is made up of the personal creditworthiness, ie the income situation and the previous payment history, the financial situation and, for some time now, its future prospects.
The EU bureaucracy has issued a Housing Real Estate Credit Directive, which requires banks to incorporate their professional perspective into the credit rating of a loan customer during the term of the loan. Retirees are thereby excluded as credit customers, unless they are wealthy. For smaller sums can also be avoided on the normal installment loan. A second person is always helpful as a co-applicant.
Do not overestimate your own abilities
The most important thing, however, is the ruthless honesty in assessing one’s own abilities. Many can repaint a room, some paper it but need expert advice when choosing the right color and the right tools.
The greater the scope of the reorganization measures, the more frequently the number of trades involved increases, and the more difficult it is to compile a suitably adequate credit application.
For many, the use of a construction expert who plans and accompanies the measure – even with own contribution – or the conclusion of a contract for a fixed price with a construction company for all trades the most nerve-sparing and ultimately cheapest solution, as these service providers always provide suitable financing offers.