Reno Loan Query - Paying Stages to Builder

[propertyVIC]

Have fiiiiinally got a reasonable sounding quote for a major extension to our IP money wise.

It's on an HIA members form.

Only thing that's raising my eyebrows is the following statement re payment (filled in, not part of the typed form):

'The contractor will submit to the owner a claim for a progress payment each month. The claim will set out the contractor's valuation of the works completed and the value of materials and equipment delivered to the site. After assessment, owner will make payment to contractor.'

I'm wondering how that will go down with the bank instead of making payments re bulkier 'stages', and how we could structure a loan to make this happen.

We have lots of equity available so I'm wondering if a line of credit would be more suitable than a standard renovation loan?

Or if we just got a loan for the full amount with an offset and left most of the amount in the offset until needed?

If it makes a difference, we'll be going to ANZ.

 

[Aaron_C]

If you are using a bank they will appoint a QS who will assess the value of the works at each stage and release payment (from the loan) if satisfied.

 

[Marty McDonald]

Sounds like a cost plus contract rather than a fixed price with 5 or 6 progress claims. Most lenders wont do cost plus contracts and won't do more than say 6 progress payments.

If the LVR is low enough as is (sound like it) you could try for a line of credit or IO and offset instead of a construction loan but your lender may not be happy to provide that much cash out if its a major reno.

What sort of loan amount is required for the renos? If it's above say $200,000 you may struggle to get cash out with ANZ without providing quotes then they may say no sorry it is a structural change to our security so has to be done as a construction loan.

I suggest if its above say $200K that is required you get the contract changed to a fixed price with stage payments ie, base, frame, lock up etc anyway. if below go for the cash out.