Borrowing to renovate?

Hi folks,

Apologies in advance for my ignorance, but could someone explain or direct me to an explanation of how best one goes about borrowing to renovate? Here's a practical example:

• Say I'm pre-approved to borrow $1.6 for a home purchase
• Instead I buy at $1.1, with the intention of doing a $500,000 renovation
• Will the bank loan me the $500,000 for the renovation, bringing my total loan up to the originally approved $1.6 million?
• If so, what type of loan will it be, and under what sorts of conditions?

Thanks in advance,

Fortune

 

You will need both security and serviceability to borrow.

If you have a fixed price building contract and the valuation comes and and you can service the loan then you may be able to borrow $1.1mil + $500k/

It would be a construction loan.

Alternatively you would borrow against other property and use the borrowed funds to reno

 

No not quite how it works.

The bank won't lend you $1.1m and another $500k to renovate it.

You purchase for $1.1m and the bank will lend against that value - so if you're taking out an 80% loan, you borrow $880k. If you want to renovate - then the most practical way to do so is either via cash or by taking out equity you have in another property.

Cheers

Jamie

 

Got it. That makes sense. I love this forum. I wish I'd discovered it when I moved here two years ago. Thank you!

 

Are you saying you can't get a construction loan for a renovation? Genuine question as I have no idea.

Another option for @Fortune Favors the Bold is to borrow against the cash for the $500k loan. There is a thread about this here:

Cash secured loan

This might suit your situation.