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Renovation Loan

Many investors or more DIY inclined home buyers like to buy run down properties and restore them to their former glory.

You can usually get a great price because the bad condition requires extensive repairs before the property can be liveable, which puts off many other buyers.

Borrowing from the banks

Financing these properties can be more difficult because the banks are concerned that if you leave the renovations half finished or if you don’t renovate at all then they would have trouble selling the property in the event that you didn’t repay the loan.

So how can you finance your renovation project?

How much can you borrow?

No intention to renovate: You can usually borrow up to 80% of the property value depending on the location and condition of the property.

Minor renovations required: You can usually borrow up to 90% of the property value, depending on the nature of the renovations required. As a general rule, cosmetic renovations are fine. If you are hiring a builder then you can borrow 95% of the cost of the property plus the cost of the renovations.

Major renovations required: You can usually borrow up to 80% of the value of the property unless you have a contract builder, in which case you can borrow 95% of the cost of the property plus the cost of the renovations.

Knock down / rebuild: Normally the property would be valued as the land value less the cost of knocking down the old house. You can normally borrow up to 90% of the land value alone or 95% of the total cost of the land plus construction costs if you have a licensed builder.

No licensed builder: You can borrow up to 60% of the cost of the land and the renovations if you are doing it yourself.

Low doc: You can borrow up to 80% of the purchase price plus the cost of construction. Some more conservative lenders may limit your loan to 60% of the property value. Because lenders are very strict with this type of lending, all low doc renovation loans are assessed on a case by case basis.

Discounts: Competitive professional package and basic loan discounts are available.

Note: Most lenders restrict the amount you can borrow quite significantly if the property is in a bad condition. Renovation loans are assessed by different banks in very different ways so please call us on 1800 889 743 or complete our free assessment form to find out how much you may be able to borrow.

A good rule of thumb

If the property could be leased in its current condition and has a working kitchen & bathroom then, as a general rule, normal lending rules apply. In these cases, you can borrow up to 100% of the property value with a normal loan or 80% with a low doc loan.

Why are the banks so conservative?

Most banks have had all sorts of trouble with renovations going wrong, in particular when a licensed builder isn’t used. For this reason, most lenders will decline your loan unless you use a licensed builder to repair or renovate your property.

In addition to this, it’s very difficult to sell a property if it isn’t complete or requires major repairs. Properties that may take a long time to sell are a higher risk to the lender in the event that you cannot repay the loan.

Why renovate?

It can often be less expensive to buy an existing dwelling that requires renovation, rather than buying a property that is ready to move in.

Renovating can also provide you with the opportunity to custom design aspects of your house such as fit out, accessories, fixtures and other structural elements of the house.

When taking on a renovation project it’s important to be realistic about what you want to achieve through the renovation and how much this will cost.

Although many people want to add value to their new homes by installing new features and top of the range appliances and fixtures, if this isn’t in your immediate budget, it’s better to settle for something more reasonable.

Renovating a property can take some time and often there are more unforeseen expenses when you get into the project. For this reason, planning and sticking to that plan is essential.

Risk involved in renovating

All too often people start a renovation project only to run out of funds half way through. Often, they will approach their lender for a loan extension, but where they’re unsuccessful they have to go to a different non-conforming lender who will allow them to borrow, but charge exorbitant interest rates. The loan can be so large that selling the property once completed, is the only option available.

If the property requires a lot of work, it may be harder to get a loan. However, it’s best to fill in our free assessment form or speak to one of our expert mortgage brokers on 1300 889 743 so they can assist you in applying to ensure that you maximise your chances of approval.

Tips for renovating

If you’re thinking of borrowing to renovate, some general things to remember will ensure that the renovation goes smoothly:

  • You can still find some properties that will sell cheaper and only require minor repairs. This will save you money and will still add value to the property.
  • Make sure that you get planning permission or check with your local council about requirements if you plan to make large structural changes to the property.
  • If you’re renovating to sell in the near future, you want to think about adding in additional extras that will increase value to your house, but without large costs, such as quality flooring and appliances.
  • Organise your finances and make sure you have a buffer in case anything goes wrong or you need for funds.

Apply for a renovation mortgage

Our mortgage brokers are experts in all types of construction loans, including home loans to renovate an existing home. Please call us on 1300 899 743 or complete our free assessment form and we will go through your options with you.

  • Samuel

    I’m planning to renovate my swimming pool. Can I get a renovation loan from the bank or should I ask for an increase on my existing mortgage?

  • Hi Samuel,

    It depends on how much equity you have in the property. You could refinance or increase your loan to get a cash out for the renovation on the property.

  • Hayley

    Hello, We’re toying with the idea of renting out our own home, renovating/making over our in-law’s house to include two separate ‘we-live-upstairs-you-live-downstairs’ dwellings. The idea being that we move in, pay an arranged amount in rent and free up some of our income for investing elsewhere, while providing widower in-law with some company, care and added income. Will the banks allow us to borrow to renovate a property that isn’t ours? NB: if required, we could arrange said in-law to go guarantor.
    Thank you!

  • Hi Hayley,

    Yes you’re right not every lender will accept this situation. We’ve got a couple of options:

    1. Borrow against your own property to renovate your in-law’s place. Depending on your equity this should be fine as long as we can prove you received a benefit from the transaction. As you will be living in your in-law’s place this can be used to prove a benefit.

    2. Borrow against your in-law’s place to renovate their property. Most lenders would require you to own part of their property to do this. This is a back up option if option 1 doesn’t work.

    A key point for your scenario is to make sure that you get home loan rates on your current property rather than investment property rates. This should be ok as you’re currently living there.

    Best of luck with your renovations!