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Borrowing to renovate?

Discussion in 'Property Finance' started by Fortune Favors the Bold, 5th Dec, 2015.

  1. Fortune Favors the Bold

    Fortune Favors the Bold Well-Known Member

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    22nd Nov, 2015
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    Location:
    Melbourne
    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
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Sydney
    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
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    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
     
  4. Fortune Favors the Bold

    Fortune Favors the Bold Well-Known Member

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

    Perthguy Well-Known Member

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    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.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Location:
    Gold Coast
    It may be a nightmare : )

    Most major near knock major renos are rarely smooth from the costs side and the variations can add up.

    regardless of what your builder tells you, most lenders will NOT pay for variations on top of the build contract with commensurate new val and application process.

    Most valuers cant touch stuff thats in transition- they dont have the vision

    ta
    rolf