Construction(?) loan for renos

[nico76]

Hi Guys,

Another one for the finance Brains Trust in here...

So we've settled just last week on a new (100yo!) property, wth the intenson of extending our loan to cover some much needed renos & extension. At original valuation, the property was valued at it's purchase price ($835k) & I'm hoping that once we submit DA approved plans & builders quote (approx. 100k) it will be revalued around $1 mill+

My question is, how is the best way to structure our submisson to the bank to maximise finance / minimise money out of our own pockets?

Also, if the builder will not actually be provding all of the items (we plan to paint, carpet, refinish floors ourselves, kitchen from IKEA, etc) however we still want funds to cover these items from the bank - -how do we provide everything in the 1 quote? Will the bank accept multiple quotes for the various works?

Thanks in advance for your thoughts.

 

[Shahin_Afarin]

Depends on the LVR - if you are under 80% then you may be able to do a full cash out, hybrid cash out and build or full build. Again depends on current LVR and end LVR.

Obviously the preference is to do the full cash out if the equity is there so that you have more control and flexibility on the funds.

 

[Mick C]

1. Depdnds on your LVR
2. End value

We get this sort of deal all the time, how much will you be spending on the total renovation project? and are they structural renovation or mostly cosmetics?

The most important part to this loan is using the right lender rather then structure.

 

[nico76]

Thanks guys. How does hybid cash out work?

Property only settled last week on a 90% lend ($750k / $835k purchase). Ideally I will stay below 80%, but this is wholly dependent on the valuation based on the builders quote. Assuming a valuation of $1m, this only gives me $50k cash out at 80% which won't be enough.

Any thoughts on how I should prepare my application to the bank to ensure minimal funds from my own pocket? Lender is Macquarie.

 

[Mick C]

No point aiming for 80% again, since you already paid LMI at 90% - it's just a matter of topping it up to 88-90% on the new $1M figure ( yes pro-rated LMi will be payable, but won't be much)

I would say Macquarie wouldn't have been my preferred choice for this sort for this sort of goal/project- their rates are very sharp ( 4.89% or there abouts) but they have no DUI for a $1m 90% LVR deal; so it will go back to your LMI for approval ( which is always a tough one) + Macquarie's cash out policy is all over the place.

Moving forward and working with what you have; i would suggest you get your broker to carry out a upfront valuation on "completed value" using the builders quote; so that you know what value/numbers you be working with before making the next move.

 

[Mick C]

and from memory..Genworth is limited to 20% of the security property value, whilst QBE LMI will do a max of $100K.

Also if Macquarie looks at your cash out as a "CONSTRUCTION " loan, you may get into a bit of trouble as their MAX exposure limit on a CONSTRUCTION loan is $800-900k ( i think or there abouts) - so hence i asked is it a structural renovations or cosmetics?

 

[Aaron_C]

This will be a construction loan as you are dependent upon the value of the property to be higher in order to fund the renovations - since you are maxed out on your equity already. You will need to get a quote for construction for the complete renovation (structural or otherwise) on the property, and get a valuation to confirm the END value PRIOR to submission of the loan. Good luck.

 

[Shahin_Afarin]

Thanks guys. How does hybid cash out work?

Property only settled last week on a 90% lend ($750k / $835k purchase). Ideally I will stay below 80%, but this is wholly dependent on the valuation based on the builders quote. Assuming a valuation of $1m, this only gives me $50k cash out at 80% which won't be enough.

Any thoughts on how I should prepare my application to the bank to ensure minimal funds from my own pocket? Lender is Macquarie.

You do not have adequate equity for a cashout - so you will need to go down the construction/building contract path. You need structure this correctly and order an upfront valuation. Are you dealing with macquarie direct or via a broker?

 

[nico76]

Thanks guys. Looks like as soon as the plans are complete I'll have my broker order a new valuation based on the proposed works. Should I build some fat into this quote? Ideally we will have the bank finance 100% of the works.

 

[Shahin_Afarin]

This is what I mean by being careful - if you add fat into it and it backfires - you may be left with an LVR of over 90% (Macq maxes out at 90%) or you have to fund the deficit.