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couplesmallIf you are building a new home or making substantial changes to an existing home then you need to obtain a construction loan. Not all lenders offer construction loan and many of those that do, charge more fees and higher interest rate.

Usually, but not always, you are restricted to a variable interest rate although most construction home loans are IO (interest only) until the construction is complete then revert to P&I (principal and interest).

If you are embarking on a renovation it is vitally important that you get adequate finance in place before you pick up the hammer. Lenders are not interested in half completed jobs or damage to the security property that they hold a mortgage over.

Download our Home Builder FAQ and our Home Builder Fact Sheet

When is a renovation considered substantial?

Typically where the cost is over $50,000 or there is a change to the roof line eg: an additional room or upper level. A deck may not be considered ‘substantial’. 🏚️

What documentation will lenders require?

For a small renovation simple quotes for materials and labour. For substantial/construction loans they will require detailed plans, council approvals and fixed price contract with a licensed builder. 🖻

Can I do an owner build

On a small renovation it is usually ok, remember electricity and plumbing always require certified work. On substantial or construction loans there are some lenders who will allow owner build. Usually they expect some prior experience and the lending may be capped at 60% of the land + construction costs.

How do lenders calculate the value of the security

For a renovation it is current valuation + renovation cost. For construction it is current valuation or land purchase price + construction cost.

Yes we all hope our house will be worth more once the work is done (gross realisable value) but that is generally only used for developers.🖩

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