Considering transforming your home from ‘blah’ to ‘brilliant’, but lack the funds to support your makeover? Never fear, we’ve rounded up five home renovation finance options that could help turn your dream into reality.

    Equity release/top up home loan
An equity release/top up loan is probably the most common way people borrow money when they want to renovate. It involves borrowing against the current value of your home before any value-adding renovations and in most cases allows you to obtain the funds upfront.

If you own your home outright, you can usually borrow up to 80% of its value.If you have a mortgage on your home, the amount you can borrow is usually the difference between the balance of the loan and 80% of the value of the property.

For example, if your home is valued at $500,000 and your loan balance is -$300,000, you could borrow $100,000 – making the total loan amount $400,000 (80% of $500,000).

One potential problem is that the cost of your renovations may be higher than the equity you have available. If you run out of funds mid-construction, and if the property is then not in sound, lock up condition, you may have an issue obtaining extra funds down the track.

      Construction loan
If you're planning to completely transform your home and undergo a major makeover, a construction loan may be a good option as you can spread the cost over a long period of time.

With a construction loan, the lender will assess the value of your home after the renovation based on the building plans and you can typically borrow against that value. You may be able to borrow up to 90% of the end value of your home and take advantage of mortgage interest rates, which tend to be lower than credit card and personal loan rates.

 You won’t be given the full loan amount upfront, but usually in staggered amounts over a period of time – these are called ‘progress payments’ and are linked to a fixed price building contract you will have with your builder.

    Line of credit
You can establish a revolving credit line that you can access (up to your approved limit) whenever you want.

You only pay interest on the funds you use and, as you pay off your balance, you can re-borrow the unused funds without reapplying if necessary.

However, care must be taken not to get in over your head in terms of serviceability. Make sure you can make repayments on the line of credit that will reduce the principle because your minimum repayment only pays the interest – it will not reduce the loan balance.

Interest rates on this type of product are typically much higher than a construction loan or equity release loan.

    Personal loan
A personal loan may be a good option if you’re only making minor renovations.

Personal loans are usually capped at around $60,000, but interest rates on personal loans are higher than on home equity loans and payments need to be made, usually, over a maximum of seven years.

    Credit cards
Using credit cards to fund renovations should only be considered if you want to undertake really small projects.

The interest rates are usually much higher on credit cards than mortgages, but for a very small project that extra interest might actually total less than loan establishment fees.

Ensure your renovations are adding value

There are very few exceptions to the rule that your renovations should add more value to your home than they will cost to carry out.
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Think about how the money you spend on a renovation will increase the value of your property. For example, consider making changes that would appeal to the majority of potential buyers to help you sell your house faster and at a higher price. 

When taking out a mortgage, many people forget to consider the fees and expenses that come on top of the purchase price of the property.

Here are some of the extra costs that you’ll need to consider when you take out a home loan.

Home loan application fees

Some lenders charge a home loan application fee. The fee will depend on the loan you are applying for and the lender.

Home loan application fees cover:

• •loan contracts
• •property title checks
• •credit checks
• •attending a settlement.

Mortgage fees and costs

• •Mortgage establishment fees – lenders generally charge a mortgage establishment fee, which is a fee for setting up a mortgage.
• •Property valuation fee – a third party chosen by the lender, is appointed to determine the value of your land and improvements.
• •Mortgage registration – your mortgage deed needs to be registered with the government. Some State Governments charge stamp duty to register your mortgage.
• •Lenders Mortgage Insurance – if you don’t have 20% of the purchase price or the value of the property, the lender will require you to pay for a lenders mortgage insurance policy that covers their risk in the event you default on your repayments.

Property fees and costs

• •Building, pest and electrical inspection fees – it’s wise to have your property inspected for any structural or electrical problems and for pests.
• •Registration of transfer fee – the new owner of the property needs to be registered at the land titles office.
• Transfer Duty (formerly Stamp Duty in NSW) - you will need to pay this when you buy a home. If you’re a first home buyer, you may be entitled to a concessional rate of transfer duty, or even an exemption from paying it
• •Legal fees – you generally need to pay a solicitor or settlement agent/conveyancer to handle the transfer of ownership of the property on your behalf.
• •Home and contents insurance – most homeowners insure their home and contents against a range of threats, such as burglary, fire, storm, etc. Lenders insist that your property is insured while you have a mortgage.
• •Life and income protection insurance – borrowers should consider protecting their incomes and themselves while they have a mortgage.
• •Utility costs – connecting electricity, gas and telephone can attract a fee.
• •Council rates – your local council charges rates to cover garbage collection and a host of other services.
• •Water rates – the water corporation charges rates for the supply and upkeep of water to your property.
• •Strata / body corporate fees – if you buy an apartment or strata titled property, body corporate fees are charged, and some fees can be significant, particularly if the building is in need of a major work, or if there are lifts, pools and other communal facilities.
• •Maintenance costs – don’t forget to make provision for regular maintenance on your home, even if you decide not to undertake significant renovation.

Every home loan application is unique, so the time between your first contact with us and approval can never be predetermined.

The most common reason for a delay is a lender’s turnaround time to assessment, especially when some lenders have competitive offerings and experience larger application volumes, but a lack of preparation can cause this delay to snowball.

If an application is not completed correctly, you risk delays in approval, or even being declined by potential lenders. There are, however, some things you can do to help the process move quicker.

Be prepared

In order for a lender to assess your capacity to service loan repayments, every financial detail must be taken into account.

Other than the obvious documentation that needs to accompany an application – satisfactory identification and evidence of income by way of pay slips – many lenders will expect to see a reference from your employer, group certificates or tax returns, and records of any investments or shares that you might have.

If you are self-employed, you will need to organise alternative documentation to prove income, such as financial statements relating to the profit and loss of your business going back two years.

Lenders will also want to see bank statements going back a few months in order to track your spending and savings history. Most importantly, you will need to provide the details of your debts.

By having all your documents organised and a savings and repayment plan documented, as well as evidence that you can commit to the plan, you will increase your chances of receiving the loan you are after.

Disclose all information

Lenders want to see proof that you are capable of managing the responsibility of the loan, through steady employment, a good credit history and a debt-free approach to your financials.

To avoid back and forth requests, which can delay your application, ensure your lender has a thorough understanding of you as an applicant including appropriate identification of all borrowers.
Provide all the supporting and necessary documents upfront to us, have good, current information on your financial position and convey as much detail as possible in relation to your requirements and objectives as possible.

We will not only need to have your full financial details, we will also need to take reasonable steps to verify them.

Skip the valuation queue

Not all applications require a valuation, depending on the property and lending institution and forgoing this step can save a considerable amount of time. You can also save time by having a valuation completed prior to your application, if it’s accepted by your chosen lender, but we will speak to you about what is best for the recommended lenders.

If you have any questions contact us we are only too happy too help.