Renovating - Which Loan?

Hi,

We are about to start renovating our home, but we are confused as to the type of loan that we should get. Do we have to get a construction loan or can we get a standard type of home loan ?

Can we go to the bank and say we need for example $300K but only $250K will be used toward the actual renovation and the rest is used for updating furniture etc.


Thanks in advance
Tweety

Depends whether you have the equity already or not. Ie most lenders will only lend 80% of the value of the house as it stands (without mortgage insurance).

Eg your home right now is worth $500k - the Bank may lend you up to $400 (that includes any existing loan outstanding). In this scenario you may be able to borrow extra and you control the payts to the builder.

If your home is not worth / or you dont have the equity to borrow the amount you require then the Bank may require building contracts and plans to do a valuation as at completion - therefore they control the payts to the builder and you may not be able to borrow extra for furniture etc.

So first things first you need to calculate what the home is worth right now as it stands and then deduct any existing debt from an 80% calculation.

Then there will be many other factors like your incomes / employment / stability etc to take into account.

Kyton pretty much covered it.

Iwould avoid construction loan if you can. If you can get away with a renovaiton loan then that's the way to go.

What are you planning on doing anyway?

thanks for that.

I was getting worried as I thought because we were renovating, we had to get a construction loan, it is good to see that we still have other options.

We are basically going to knock down part of the house and create a new kitchen, laundry, bathroom, bedroom, study, wir, ensuite and larger living area. What we thought was going to be a small job has turned into something alot bigger. I am sure it will all be worth it in the end!

Btw does anyone know which banks offer multiple offset accounts ? The only one that I know of is Suncorp.

Thanks again
Tweety

They all do ( well 8/10 of the banks)
From the size of your project you can get away with a simple equity release or LOC ( equity release preferred as it's cheaper in rate + much easier to pay down with the offset)

A problem i can see is LVR and LMI....if you have enough equity to keep it under 80% all good....if not then you will your broker or bank manger to lodge it as an "end value valuation" to get a higher valuation.