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Funding a renovation

Discussion in 'Property Finance' started by Jojo2016, 18th Feb, 2016.

  1. Jojo2016

    Jojo2016 New Member

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    Hi!

    I am trying to find out how to fund a renovation using equity.

    I have equity in PPOR. Want to buy IP, fund the deposit and costs with an equity loan. But also want to do a (cosmetic) renovation.

    If I get a line of credit loan, am I later able to roll that loan into the same equity loan I am getting for the deposit?

    What criteria is needed to get approval? Do I need to prove anything outside of equity/servicing? Like uplift in value or quotes for costs or anything like that?

    Is this the usual way of funding a reno?
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If you have enough equity and income then you only need to satisfy your lenders need to control funds-i will they do "cash out"

    ta
    rolf
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You can get a loan for the total cost of the deposit plus the reno, assuming the reno cost isn't too huge. If it is, it's likely they'll assume it's structural and want to see quotes or a building contract.
    Using equity is the best way to fund a reno, if you don't have equity the bank won't fund them so have to use cash.

    Which lender are you with? This will have a large part in determining how easy the equity release will be.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Sounds to me that you need funds for "non structural renovations"

    Cheers

    Jamie
     
  5. WattleIdo

    WattleIdo renovating Premium Member

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    Yes, you take out 80% of your equity (or less) as an equity split loan. This split loan is best as IO so that you have an offset account where you can take out money as you like.
    Not sure if this part is correct or not, but I keep mjne toppped up with my pay.
     
  6. Jojo2016

    Jojo2016 New Member

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    Thanks so much for all your answers!

    Great to know I don't have to worry about proving all that extra stuff I thought I might have to.

    Jess, any suggestions as to which banks are easier to release equity with would be very welcome.

    WattleIdo, this 'split' loan is separate from the PPOR loan? (So there is no tax implications mixing up personal and business?) Is it different to a line of credit?
     
  7. Redom

    Redom Mortgage Broker Business Member

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    In terms of lenders - CBA, St George, Westpac, Macq, ANZ, Homeloans, etc - will make it all reasonably easy so long as your LVR is below 80%.

    If above 80%, ANZ is probably easiest, but you may already have LMI credits to use with your existing bank.

    In terms of how it could get more difficult - some may want to control the funds instead of letting you direct payments as you need to.
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Some banks are also horrendous under 80%, and want to see end debt servicing when the purchase is for another property which can prove difficult in some circumstances.

    You definitely need to split the equity loan so it's separate from your PPOR loan or you won't be able to claim the deductions - it will be a mixed loan. You can do the split with a LOC or with a term loan - which is better depends on lender.
     
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  9. Jason Tyrrell

    Jason Tyrrell Well-Known Member

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    AMP also have a good "cash out" policy, with generally no questions asked to 85% LVR.
     
  10. Jojo2016

    Jojo2016 New Member

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    Thank you all so much for all your help :)
     
  11. Fitzy1903

    Fitzy1903 Well-Known Member

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    Hey Redom.
    How do you pick up/access LMI credits?
     
  12. albanga

    albanga Well-Known Member

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    If you have already paid LMI with your current lender then accessing funds up to that LVR will only incur a small adjustment cost as opposed to going to LMI territory with a new lender and paying those costs again.
     
  13. Fitzy1903

    Fitzy1903 Well-Known Member

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    So if have purchased a place going up to 88% LVR (incurring the LMI) and the deposit came from your LOC. And then you had 20% capital growth on the property, so then if you combine the LOC and investment loan (which would release the LOC) into one investment loan which would come to 88% LVR, does this mean you wouldn't incur the LMI again?
     
  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It's just an adjustment - for eg if you pay LMI of $5k and your LVR is 90%, when your property grows and you want to bring the LVR back up to 90%, you only pay the small difference in LMI.

    There usually is a difference b/c 90% of $450k will incur slightly more LMI that 90% of $400k. Does that make sense?
     
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  15. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    No questions on any amount for cash out for "personal investment purposes"..they say.
     
  16. Jason Tyrrell

    Jason Tyrrell Well-Known Member

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    Yes, you need to know the code ;-)
     
  17. Fitzy1903

    Fitzy1903 Well-Known Member

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    Ah yes, makes sense. Thanks Jess!