Renovation finance

M

maadha

Hi,

Planning a reno and just wondering what options there are for financing. It is a newly purchased property that we plan on renovating in about 8-10 weeks time.

The home was purchased as first home buyers and we'll live there for 6 months straight from settlement and then move out and turn it into IP. Current mortgage is an IO with offset and 90% LVR.

Budget for the reno (granny flat) is 50-60k. Can we get a loan for this and if so what are the best options?

Thanks.
 
yea at 90% LVR 6 month ago, you will struggle to get any more out.

1. You will need to get a re-value...don't expect to much--- property prices dont jump within a 6 month time-frame....AT MOST it be 5-10% PA in this current market.

2. LMI based on increase

3. If you want to go to 95% LVR your chances are better as owners occupied VS investors loan.

Regards
Michael
 
Thanks guys. Here's a bit more info...

Loan is 400k. Have not had bank valuation yet but expect it to be around 450k.

Our pre approval allowed us to purchase property up to 585k but we chose to change areas so we did't have to go to our max. We still have a bit of money in the bank to use if need be but would prefer finance.

Concerning re-valuations, do banks ever give values on what a property would be worth after a reno is done? What I mean is that by building new granny flat on the back of the block we are expecting the property to then be worth 540-550k. (judging on other near by similar properties).

If not, what are the other finance options. Personal loans or construction loans?

We do have a mortgage broker who I will be putting this too but would like to gain a bit of knowledge first.

Thanks again.
 
Reno

Hi Madha

Congrats on new purchase...a few points:

1) Your budget for new granny flat (i assume) is way too low! (if you can get a builder to do for that price, please PM me:p

2) If it is a 3 bedder house, the valuer will base his valuation on similar type of house with granny set up in the area (are you able to locate any?) if not he will base on similar 4 bedder set up...

Don't over spend on reno if you intend to turn into IP; just decent spruce up (concentrate on kitchen and bathroom)...

all the best
 
Mick C said:
yea at 90% LVR 6 month ago, you will struggle to get any more out.
Click to expand...

Hi Michael,

I think what the OP is asking is, as a FHB, he has just purchased a house for $450K with a 90% LVR loan.

Now he wants to build a granny flat while he's living there for 6 months to qualify for the FHOG & SD concessions. Where does he get the funds for that? Can he get a construction loan?
 
Propertunity said:
Hi Michael,

I think what the OP is asking is, as a FHB, he has just purchased a house for $450K with a 90% LVR loan.

Now he wants to build a granny flat while he's living there for 6 months to qualify for the FHOG & SD concessions. Where does he get the funds for that? Can he get a construction loan?
Click to expand...

in that case, yes you can apply for an construction loan. As long as the granny flat is not a kit home, mobile or self installed etc...

Regards
Michael
 
Propertunity said:
Hi Michael,

I think what the OP is asking is, as a FHB, he has just purchased a house for $450K with a 90% LVR loan.

Now he wants to build a granny flat while he's living there for 6 months to qualify for the FHOG & SD concessions. Where does he get the funds for that? Can he get a construction loan?
Click to expand...

Exactly what I was trying to ask.

Thanks.
 
OK - so where does the OP go to get finance to build his granny flat?

Does he just put it on Visa, or get a personal loan for a few months and then try to refinance the whole house & completed granny flat on completion?
 
Hi,

Expensive exercise to get a personal loan or CC and then hoping a new bank or current bank would take on the debt consolidation, it's one possible solution but since LVR is hovering + 90% LVR, chance of debt consolation is unlikely with the LMI provider.

Propertunity - your push to help maadha is commendable .
So i have done some research and rang a few banks.

One possible Solution:

Instead of applying for an construction loan, just apply as an improvement/renovations refinance ...now not a lot of banks will allow the valuer to bring the value up based on "future improvement" however i done this a few times in the past and i know this feature is offered by ABL ( Adelaide bank) and ING ( tend to be more strict) just to name the top 2.

In this case both lenders, lend up to 90% of the total value of the subject property taking into account all improvements.

The bank will get the valuer to value the proposed improvements ( simliar to a construction loan) and that will provide a total valuation amount.

1. Unfortunately you will need to refinance, even if your current bank is ABL they will not re-value a place that quickly.
2. Refinancing so soon can be costly + LMI is payble once again...so think carefully


The preferred solution

1. Wait 6 month and get it re-value with your current bank and do the equity release- LMI will be pro-rated

Regards
Michael
 
Mick C said:
Instead of applying for an construction loan, just apply as an improvement/renovations refinance ...now not a lot of banks will allow the valuer to bring the value up based on "future improvement" however i done this a few times in the past and i know this feature is offered by ABL ( Adelaide bank) and ING ( tend to be more strict) just to name the top 2.
Click to expand...
This is excellent info. Thanks, Mick
 
Thanks everyone for the advice.

I always google first before posting but sometimes there is so much info on the net that it is hard to know which of it is valid.

We are not in a mad rush to get this done and will be doing a kitchen and bathroom reno first (minor ones at that) and painting the place so will concentrate on that during the first six months.

We will then get a valuation around March next year and hopefully will have increased the value a bit. I'm also hoping that the culling of the 'first home plus' stamp duty exemption will have an impact by seeing a rush to get in before it dies and in the process forcing prices up. (Just as I noticed when the FHOG was cut from 14k back to 7k)

If all that is favorable then we will look at kicking off the Granny flat build while turning the house into an IP.

Thanks again.
 
Aaron_C said:
The 50-60k is too low for a construction loan.
Click to expand...

Just reviving this as I've seen that AMP have a construction loan and will lend from $40k to $850k and up to 90% LVR. This may be an option for me.

Has anyone here had experience with construction loans for granny flats? Given that I already have a mortgage on the house with a different lender what criteria will they base their lending on and what will they use for security against the loan?
 
maadha said:
Just reviving this as I've seen that AMP have a construction loan and will lend from $40k to $850k and up to 90% LVR. This may be an option for me.

Has anyone here had experience with construction loans for granny flats? Given that I already have a mortgage on the house with a different lender what criteria will they base their lending on and what will they use for security against the loan?
Click to expand...

In theory yes, in reality no.

You will be struggling to get AMP to get any construct accepted where ist not 100% plain and simple

ta

rolf
 
Mic what's this about on complete valuations without full construction loan hoopla? Never heard of that one. Do they just give cash out at the start, direct cash direct to builder (what if there is no builder?), or do as construction loan with 1 progress payment?

Appreciate if you would eloborate as I am sure other ss's would also be interested in this.
 
And AMP Charge a upfront app fee $350 JUST to submit and look at a deal :(

There's a difference between a construction loan and a "loan ( cash out) " for another use including small construction.

The reason why we have said no to the original forum poster is Maadha is on a 90% LVR from 6 month ago, and want to "cash out" another 50-60k for this granny..so what are the chances the property has gone up by 50k in 6 month? -- very very very low chance in this current climate ( i be shocked if it has ...). Cash out is limited to 90% Max, will struggle to go over the 90% mark...

So the another solution was to go via a construction loan; in which end value could be considered...but given the amount it be hard to place it as a "true" construction loan + AMP doesn't take in end value for construction...

Regards
Michael
 
Marty McDonald said:
Mic what's this about on complete valuations without full construction loan hoopla? Never heard of that one. Do they just give cash out at the start, direct cash direct to builder (what if there is no builder?), or do as construction loan with 1 progress payment?
Click to expand...

??? Not sure what this is about??? direct me to the post- sorry.

It's probably about a "cash out" for renovations? no such thing as 1 progress payment for construction.

Regards,
Michael
 
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