Have you and your partner been talking about the options of one day upgrading that daggy old kitchen and bathroom in your family home to something modern and functional that everyone will be happy with and enjoy coming home to, but have never been in the right position to get enough funds together to make this happen? Well there is the potential to look at your options for obtaining finance to cover the renovation costs it’s a matter of talking to the right professionals and having a clear idea of what it is you want to achieve and then making sure it lines up with what you can actually achieve in reality.
Prior to looking at your options to obtain finance for renovations it is important to work out how much the renovations will cost you by obtaining a list of quotes for the jobs you are looking to have completed. An effective way this can be done is by engaging with a qualified architect or builder to assist with constructing and putting together the proposed plans. As you are looking to engage with the services of a professional it is important to obtain a number of quotes as this can assist you with meeting your budget at the end of the process. It is best to talk with your chosen professional about how much of a percentage of the budget should be set aside and accounted for to cover any inevitable delays which have the possibility to happen during the renovation process.
Once you have worked out your overall budget you will know what costs you will be up for and how much you may need to look at borrowing to make this dream a reality. Another thing is you will know what areas you can cut back on if you decide that you want to save some money throughout the renovation process.
Before the desired plans are finalised and prior to works commencing, it is important to engage with employing the services of a licensed building inspector to perform an in depth building inspection on your property backed up by a report given to you to ensure there are no hidden structural issues unforeseen to the naked eye and also to provide that peace of mind there won’t be any hidden costs involved. If there does happen to be any major structural issues this could potentially blow your budget out the water before you have even begun.
Some common methods you can follow to get the ball rolling are the following:
Many lenders will offer building or construction loans as part of their normal lending suite, you will need to provide the lender with a list of quotes of the proposed jobs to be completed. These loans acts as a line of credit in the way that you can draw down as renovation costs are made payable to the relevant trades professionals. The advantage of this type of loan is that you aren’t making repayments on the full value of the loan at once until the funds are fully drawn so in the meantime the payments are made on the progressive loan balance, which increases over time.
It is important to talk with your mortgage broker as they can assist in letting you know whether your lender has the ability to provide you with an interest only period for set time as this will help to keep your costs down during the building or construction period. If the lender doesn’t have a building or construction loan product to offer, you may be able to have access to a general line of credit which works very much the same. Once the renovations are finished, the building or construction loan or line of credit facility can in many cases be rolled into your home loan.
Where a renovation is small and you just want to update your kitchen without any building work needing to take place you might consider a personal loan as it is over a shorter period of time and not touching your home loan. As personal loans are not secured against your home the interest rates are quite high compared to a home loan. With a much shorter loan term in place and if the process is done correctly you should pay less interest over time as opposed to taking out a construction loan however it is absolutely important to speak to your mortgage broker and explain what your intentions are and your broker will be able to provide you with and find the most suitable option.
With the evolving market, specialised non-bank personal loan products are now available which can provide flexible options, from unsecured loans, no guarantor loans, revolving personal credit facilities etc.
If you have been making extra repayments on a more frequent basis on your home loan or have even been paying more than the minimum required amount over a period of time there will be a possibility that you may have equity funds available as well as taking into consideration the growth in property values backed up by an opinion of a professional valuation, if you would like to obtain a valuation don’t hesitate to talk to your mortgage broker about getting this organised and they will be able to advise on the necessary steps.
The way to calculate the amount of equity you have is by the value of your property less the outstanding loan amount. If your property is valued at $450,000 and you owe $300,000 on your loan, your available equity is $150,000.
As long as you can demonstrate that you can meet the repayment requirements and have the ability to prove the renovations will add value to your property, most lenders in many cases will be happy to loan you the additional funds up to a certain percentage of your equity for home renovations. Depending on your situation, this equity could be accessed through redrawing, increase/top up your existing loan or refinancing your loan entirely to another lender. Your mortgage broker will be able to talk with you and advise the most suitable option for you based on your situation.
It’s worth noting that for home loans for renovations on your property must be for fixed items. Portal items such as furniture, portable evaporative coolers, above ground no-fixed pools all cannot be financed under traditional home loans as they can be easily removed and sold, leaving no security for the property. Instead you will have to rely on either cash-outs or unsecured finance to purchase these items through finance.
Each and every option will have advantages and disadvantages for different individuals and their situations, so it is important to speak to your mortgage broker about what your intentions are to find out the most suitable option and take some time to consider them. Remember, your mortgage broker can always help you with any questions you might have. If you have any queries or a question regarding specific information around a renovation finance don’t hesitate to talk to your mortgage broker Gerry and he will be able to assist with answering any questions.