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Financing Your Construction or Renovation
Building a new home to match your exact preferences or renovating your current home to better suit your lifestyle can be incredibly rewarding. Here’s how to choose the right loan for your construction or renovation project, with the help of a Loan Easy broker.
Choosing the Right Construction or Renovation Loan
Loan Easy brokers can assist you in financing a variety of projects, including buying land, building new homes, purchasing off-the-plan properties, and securing house and land packages. You have several financing options depending on your needs:
- Construction Loan: Ideal for building new homes.
- Home Loan Refinance or Personal Loan: Suitable for renovations, depending on the scale of the project.
What is a Construction Loan?
A construction loan is designed specifically for building properties. It is disbursed in stages as the construction progresses. Borrowers typically need to provide a deposit and detailed construction plans when applying. The loan is secured against the property being built.
Differences Between Home Loans and Construction Loans
A home loan usually involves a single payment made upfront at the settlement of the property. In contrast, a construction loan is paid out in stages, known as progressive drawdowns, directly to your licensed builder. During the construction phase, repayments are often interest-only, converting to principal and interest repayments once the build is complete. This structure means you only pay interest on the funds that have been drawn down.
Financing a Home and Land Package
Financing a house and land package generally involves two separate products that can be bundled together. The land purchase is financed similarly to a standard mortgage, while the home construction is usually financed through a construction loan.
How Construction Loan Payments Work?
Before construction starts, your builder will provide a detailed cost breakdown and payment schedule. As each stage of construction is completed, the builder issues an invoice. The lender may inspect the property to ensure the work aligns with the plans. Typical stages include:
- Slab
- Frame
- Lockup
- Fit-Out
- Completion
Deposit Requirements for Construction Loans
The required deposit varies by lender but is generally around 20%. If you have a smaller deposit, you may need to pay lenders mortgage insurance (LMI).
Options for Renovation Loans
The right loan for your renovation project depends on its size. If you don't have the funds to cover the project outright, your Loan Easy broker can help you explore the following options:
- Refinancing Your Home Loan: Utilize the equity in your property.
- Construction Loan: Suitable for larger renovation projects.
- Personal Loan: Find a competitive personal loan for smaller projects.
- Other Funding Options: Consider cashing in investments, redrawing from your home loan, or using savings/offset accounts.
Your Loan Easy broker can guide you through these options to find the best solution for financing your construction or renovation project.
