Reno before settlement and no deposit down

Is it possible to do a reno on a property before settlement and then negotiatie with the lender to use a post reno value rather than the contract price to essentially put no deposit down?

 

If the vendor allows it you could have no deposit down (or minimal, like $500) and then a condition allowing you to carry out works prior to settlement.
As for the valuarion side though, one of the experts on here can guide you. My stab in the dark says unlikely.

 

Pretty poor deal for the vendor, they get no security and you devalue their place if you don't finish the Reno and the deal falls over leaving them with a property that's harder to sell. I wouldn't go for it if I was the vendor.

Everything is negotiable however.

If the post Reno val doesn't stack up how do you settle?
Think it would be easier to pay the deposit, Reval and extract equity the standard way.

 

no, but great question.

The vendor is unlikely to allow it, unless they are doing their own conveyancing and don't understand the risks of letting the seller do works before settlement.
The valuer will use the contract of sale as the most relevant evidence, if they could be convinced otherwise, the lender will always take the lesser of the two, purchase price or valuation.
The only exception to this is when the contract is over a year old, in which case a few lenders have some scope to use the increased val, under 80% LVR.

 

Thanks. I was able to get early access on a 100 day contract in Brisbane. I have been doing renos for the last 2 months and it has certainly gained value with the works. Once it settles, can I go right back to the lender and tell them to revalue it?

I mean from the banks perspective, is it really that much different? I suppose the risk is that if the valuation doesn't come back higher than the contract price....

 

Valuation or contract price - whatever is lower.

 

and then re value the day after it settles and ask for your deposit back?

 

you could do that with some banks. One of my client's successfully did it.

but from a tax point of view you won't be getting your deposit back but borrowing money. So just make sure you have a separate loan for this.

 

If you've completed a significant enough renovation the valuer may certainly attribute a higher value - but don't be fooled into thinking they necessarily value it at 100% new market value unless it's been a complete restructural renovation.

I've had valuers only provide nominal increases for properties with updated kitchens, painting throughout, floor etc as it was <3 months since the purchase.

 

thanks for replies. If my current lender doesn't value it at market, can I approach a new lender and ask them to value it for the possibility of buying out my loan?

 

Sure, but you would be better off having a broker order an upfront val or two instead, as approaching another lender directly will usually involve another hit to your credit file.

 

And it's at the valuers discretion more than the lender - they are independent of the specific bank.

I'd challenge that it certainly would be difficult to conduct a sufficient renovation during the settlement period that would materially impact the valuation enough to justify moving lenders - there are some nice exceptions, but you have to consider costs + time vs waiting it out (refinancing to another lender is going to hit you with another 4-6 weeks before settling).