RENOVATIONS

Looking for renovate or extend your home!

You know how today’s property prices are so if you love the area you live in currently then it is a great idea to renovate and build your dream home instead of buying a new one. By doing this you will not only get the home you want but also you will avoid stamp duty and other charges associated with moving house.

Access Home Equity
Flexible Loan Solutions
Refinance
Construction Loans

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FIND YOUR RATE

In Focus

Owner Builder or Fixed Price Building Contract

If you are reading this I am going to assume that you are looking to do a major renovation or extension not just a makeover of the kitchen or bathroom.

You need to first answer the question that how you are going to approach the build. Are you going it alone as an owner builder? Or are you okay to have someone else take on that mammoth task and enter into a fixed price building contract with a licensed contractor?

Your approach will have implications for the kind of financing you will be searching for and which lender will be right for you. It is important to note that not all lenders do construction loans and only some of them will lend to an owner builder.

Construction Loan features:

Stages of a Construction - A construction loan allows you to pay your builder by progressively drawing-down funds as the construction occurs – generally in five stages: slab down or base, frame stage, lock-up, fit-out, and completion.

Fixed Construction Periods – Most lenders will allow between 6 months to 24 months to finish the construction. There may also be a deadline for when construction requires commencing if you have bought land to build on. You should be sure to contact your lender if you need an extension on such deadlines.

Progress Fees – If the lender makes the progressive payments during the construction there may be fees charged. Various lenders will charge for each payment (up to $250), while some will charge a one off fee for all payments up front (up to $700). You should check with your broker what these fees will be in your circumstances.

Contract Variations – If you have listened to anyone’s construction stories, you will know that everything does not always go according to plan! While it is the best to have any changes to your plans done prior to file your home loan application, no need to be panic if there are any variations happen during the build. Just make sure you notify your lender of these variations as they happen during construction. Depending on the changes, they may require to complete another assessment.

Owner Builders:

Lenders have either tighter restrictions in place when lending to owner builders (for example the lender may approve a smaller amount of money to lend vs. someone who uses a licensed contractor), or will not lend to you at all if this is the case.

This is due to owner builder loans being classed as relatively high risk. Lenders are concerned that as an owner builder you will run out of either time or money to complete the project. The last thing a lender wants is you not completing the build and being in the position of having a half finished home they need to liquidate to recoup their money.

As an owner builder you will need to provide more documentation. This could include:

Building and floor plans
A total cost estimate of construction ratified by a quantity surveyor
A copy of your owner builder insurance & permit
A copy of the council approved plans

A few things you should keep in mind as you start to plan and construct your home.

Keep to your budget. If you run out of money during construction the lender may not approve an increase for you. You will be required to include a contingency budget up front for any unforeseen expenses.
Don’t begin construction until you have your loan approved. If you have already commenced construction your lender may not approve your loan!

Fixed Price Building Contract:

It’s much easier to get a loan with a fixed building contract than as an owner builder. For a start there are more lenders to choose from.

This is because of two main reasons. The first reason is that you have a specialist on-board who will manage the construction. This is less risky to the lender. And the second one is the fixed price component protects you and the lender from cost increases during the construction.

Following are the documentation you may require for a construction loan with a licensed contractor:

A copy of the fixed priced building contract
A copy of the council approved plans
A copy of the builders license, their public liability insurance and their bank account details for the progressive payments
Quotes for any additional work not included in the fixed priced contract
A copy of your Home Owners Warranty (HOW) insurance or BSA/QBCC Home Warranty Insurance (QLD)

Loan Types

The loan type you needed will depend on the cost and scale of the renovation you are wishing to embark on.

Here are the two major loan types used for renovations. If you want to talk to a broker to find the perfect loan option for you give us a call on, 0290300637 you can use web chat and fill in our contact form.

1

Line of Credit Loan:

This is typically the most common way for Australian’s to borrow money for a renovation. With this type of loan you are able to borrow the equity you have built up in your current property. Remember to calculate your equity based on an 80% LVR so you don’t need to pay Lenders Mortgage Insurance on the refinance. This loan gives you access to all the money upfront and you are able to use as needed throughout the renovation.

2

Construction Loan

When using a construction loan for renovating, the lender will take into account the final value of the home when determining how much equity you have and how much you can borrow. The advantage of this is the ability to borrow more money than just the current equity you have in the home. This will assist if you are looking to do a major renovation. With this type of loan the lender will release the money to you in stages as the renovation progresses.

Ask a Broker

When renovating your home there are a few different requirements your lenders will be looking for. You’ll also no doubt be looking for a flexible home loan that allows you to access your money as and when you need it.

Let’s look at some questions you should be prepared to discuss with your broker.

What type of loan is right to renovate?
If I wanted to extend the house do I need a different type of loan?
How do I access the equity in my current home?
I own my home outright – does this affect the loan I need?
Will a lender give me the money in one lump sum or will I need to be paid in instalments?
How do I pay the builders?
What happens if the build is delayed?
How do the lenders value my property?
Do I need to submit building plans?
What insurances do the lenders need me to have?
What is the maximum LVR I can borrow to?
What loan features should I consider?
Is a line of credit needed?
Should I look at a redraw feature?
Do I need to have the renovation completed in a set time period?

Ask yourself

It is always good to be clear on what you want to renovate or extend your home and how much you want to spend on it. Make sure you have the budget in your loan to do what you desire. The flexibility needed will depend on the type and scale of your renovation of home.

Following are questions, you should ask to yourself before chatting to your broker.

Are you using a licensed contractor or are you doing the project yourself?
Are you remodelling a room or multiple rooms? Or are you looking to add on extra rooms or build up?
Have you already engaged architects, builders and/or interior designers?
Do you know how much your renovation will cost?
Do your builders have the required permits and insurances?
Is there anything else you need to use your equity for?
Will you need a line of credit?
Do you want to stay with your current lender? Or are you happy to move?
What do you think the value of your home will be after the renovation?
What features do you want included with the loan?

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