Renovations are expensive in Bermuda, but with sound financial management you can make it work.
Tanya Bule, head of International Wealth and Premier Banking at HSBC, responded to basic questions you should ask before you make your move.
They say prevention is better than cure. What’s the best way to prepare to finance your home renovation?
First and foremost, the client should gain an understanding of the scope of work required by engaging with a reputable contractor to obtain a professional quote.
Once that has been completed and the client has a sense of the scope of work and costs involved, they should consult with their bank to gain an understanding of what is feasible from a financing and affordability perspective.
How can you find out your borrowing capacity? Does Bermuda consider your credit score and home equity when applying for a loan?
Engagement with a financial advisor at your bank is paramount in determining your borrowing power.
Verification of income and expenses are vital in determining what a client can borrow. Bermuda actually does not have a central credit bureau and as such credit score isn’t utilised here locally. Local banks will, however, check your credit history with other financial institutions.
Are loans for renovations more flexible when it comes to financing and rates than when obtaining a loan to purchase a home?
This depends on the scope of work – if the works are purely interior/cosmetic and do not involve the addition of square footage to the property, depending on the dollar amount required a simple unsecured loan could be the most appropriate route for the client.
If the works needed are more extensive, such as adding square footage, then a construction loan is required, and this is more complex.
A construction loan typically requires multiple contractors quotes as well as a quantity surveyor’s report.
What percentage would you recommend as a contingency fee in your loan amount for unexpected expenses?
Contingency is typically required between 10 to 20 per cent of the total quote of the job, based on the scope of the works.
Are there any alternatives to borrowing for home renovations? Compare and contrast getting a loan to using your savings or a credit card.
Not to be too repetitive, but this is also dependent on the scope of work and level of financing required. HSBC offers unsecured lending up to $80,000 over a five-year term.
What steps are there to obtain a loan for home renovations?
As mentioned above, this is dependent on the scope of the work. It is always recommended that a client engages with a contractor initially to understand the scope and cost of proposed works.
The next step would be to engage directly with their financial advisor at their bank to ascertain what is required in terms of securing financing.
Some key touchpoints throughout this process could be obtaining architectural design plans, formal planning approval, potentially a quantity surveyor’s report and a property appraisal to determine the fair market value as is, and upon completion.
