So you've been thinking..... for a while.... of updating your home with a new bathroom, kitchen, rear deck or extending to cater for a growing family. The key is drawing the line in the sand as to how far you will go with your renovations. I have carried out two large renovations over the last 5-years and have learnt many lessons, here are a few:
- Visit multiple home improvement stores and display centers and save photos of what you like.
- Find reliable trades people and ask them to show you photos on their phone of their previous work.
- Make progress payments instead of lump sums before they start and record every payment.
- Keep some money under your pillow for those unexpected discoveries.
- Find your local Bunning's and build relationships with everyone there.
- Be prepared to carry out a few odd jobs yourself.
There are several ways you can fund a renovation depending on how far you want to go. If you are making structural changes to the property or building a Granny Flat, you will need to advise your local council and gain the necessary approvals as well as legally advise your lender as they are the mortgagee of the property.
Funding Option #1- Using your personal savings:
- By far the easiest way to fund your renovation as you are in full control and there is an emotional attachment to these funds. This will encourage you to spend more wisely.
Funding Option #2 - Using your work bonus or tax return refund:
- If your not using these funds to reduce your mortgage, then they can be potentially used to make updates around your home.
Funding Option #3 - Using your credit card:
- Depending on the size of the renovation, you could get away with using your credit card with major suppliers, but you will need to be disciplined with making regular repayments as soon as possible to reduce interest charges.
Funding Option #4 - Releasing equity in your Home:
- If you don't want to tap into your savings, want to avoid making those high interest repayments with your credit card and you have equity in your home, this could be the preferred way to source the required funds. At the same time, it is a perfect opportunity to review your mortgage to see if you can find a better deal.
Example of how this could work:
- You have a mortgage of $370,000 remaining on your property and your property is valued $950,000; and
- You need $100,000 for your renovation; and
- As long as your income can service the new debt (mortgage) of $470,000 and you have a clean credit file, we will find you a lender who can accommodate your equity release.
Funding Option #5 - Construction loan:
- If your renovation plans are structural (i.e 2nd level addition, demolishing a portion of the house etc) and there is a mortgage over the property, you are legally obligated to advise your lender and obtain a construction loan.
- A construction loan has several benefits to the home-owner:
* The builder will need to provide everything to you in writing and produce a formal building contract; and
* The lender will ensure that the builder is certified and holds specific insurance policies; and
* The lender will control the progress payments. If the builder slackens off or they are behind, they wont get paid; and
* During the construction stages, you have the option to make interest only repayments; and
* Once construction has been completed, you can convert the loan into a standard everyday loan.
Feel free to discuss your scenarios with us and good-luck with your plans. I hope it stays well below budget :)