Financing your next renovation or build - Misc. AU
Financing your next renovation or build

Financing your next renovation or build

Words by Construction Concierge

Wouldn't it be great if you could get your dream renovation or build done without having to worry about finance and budgets? What if your dream renovation was more achievable than you thought? You may be thinking about a number of different situations such as I don't have enough cash, can I use my equity in my property? Will the bank give me a loan for my renovations and so on. These are all valid questions and in this blog I dive deeper into these questions with Managing Director of Intelligent Finance, Justin Doobov.

The current lending space

Finance has generally been a lot harder to get in recent times as banks are scrutinising your spending on a daily basis with some lenders looking as far back as 3-6 months of spending. Although lending has been a little more difficult that doesn't mean banks are not willing to lend. Justin states "Lending has tightened, but for the right applicant, banks are still lending". He also states that if you are looking at the potential of obtaining finance in the current market, you should be looking at tidying up your spending habits a good 3-6 months prior, "You need to start 3-6 months before and clean your position to get into a good habit of spending less money".

Can I use the equity in my home to renovate or build?

Many years ago it was as simple as whatever equity you have in your property you could access 80% of it to use on purchasing another property or upgrading your existing. Nowadays it is a lot more difficult to access the equity as it all depends on serviceability. So no matter how much equity you have, the maximum you will get released is based on how much you can service. However there is a chance that if the equity cannot be released then it may still be possible to get a construction loan where the bank has a little more control over the funds.

Construction and hybrid loans

For some people releasing all the equity in the property may not be possible to undertake their dream renovations. If for example your renovation was going to cost $500k and you could only release $250k of equity, it means that the bank would have to lend the balance of $250k as a construction loan where they control the funds. During a construction loan you would need to have submitted to the lender a full suite of documents including DA approved plans, permits, consultant reports and more importantly a signed building contract for the works to be complete. During the construction phase, the banks will drip feed the money to you as works are completed at several stages. The build will generally be broken into 6 stages and at the completion of each stage, the bank will do an inspection and the funds will be released once they are satisfied.

Is now a good time to renovate?

This question comes up a lot and can leave many people pondering on whether to renovate or relocate. In general if you are happy with your current location then it is going to cost you less to renovate than if you were to sell and move. Selling and acquisition costs can really blow out and cost you hundreds and thousands of dollars depending on the type of property. Putting this money into a renovation of your current home may be better suited to you especially if you love the current area or location of your home. With the current climate and having so many people working from home for the near future it may make more sense to spend some money on your property to make it more functional and liveable for your new circumstances. This may mean the addition of things like home office space, bigger kitchens and home gyms.

Who do I speak to about my situation?

If you have decided that you want to explore some options and find out if you could potentially release some equity, the best person to speak with is a mortgage broker. There is a misconception that you will get a better rate at your current bank because you have been with them for a long time and they know you so they will give you the best possible options. This couldn't be further from the truth. A mortgage broker will work with your current situation and know which lenders will suit you and your goals. They will then find you the best possible deal with all of these lenders as well as look at the pros and cons of each. A brokers job is to find you the best possible deal for your specific situation as opposed to your current bank giving you one option.

If you would like to get in touch with the team at Intelligent Finance please email them at the below email address and let them know the the team at Construction Concierge sent you! We have also uploaded the enquiry form that you can fill out and get a speedy answer to see what your serviceability is like!

[email protected]

For the full audio of the interview with Justin Doobov please click this link.

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