Financing your renovation

The types of loan products available to you will depend on the type of renovation, says Cherie Barber, founder of Renovating for Profit. Banks will typically lend with relative ease for a structural renovation, she says, however it’s a different story for cosmetic renovations which will generally need to be funded by the property owner’s own money or equity.  

“The bank won’t typically fund a cosmetic renovation unless there’s a lot of equity or good security in the property,” she says.

For a structural renovation, however, the banks will typically lend you on the end value and they’ll draw down the payments – “it’s called a construction loan, and they’ll draw that down to the builder in progress payments,” she says.

Depending on the size and cost of your renovation, it’s also an option to extend your current home loan. Wayne Bouke, franchise principal at Aussie Nowra, says there are usually two options depending on the size of the renovation.

“If it’s just a lick of paint and a small renovation I would go down the personal loan path,” Mr Bourke says. “If it’s more than $25,000, depending on whether you have got equity you can get it on the back of your mortgage without too much trouble,” he says. “But if it’s under $25,000 you would probably look at a personal loan if you can afford it."

Personal loans or credit cards

When it comes to personal loans, Ms Barber says this is potentially an option if you have security, but not generally the done thing. “No bank will lend you any money to fund any renovation if you haven’t got security,” she says. “They have to secure their money in one way, shape or form.

“If you’ve got a lower loan value ratio (LVR), if you’re only borrowing say 60 per cent, they will absolutely lend you money up to 80 per cent because they’ve got security. Most people aren’t in that situation, though.”

If you can’t go down traditional lending paths, Ms Barber suggests making use of credit cards.

“Apply for three credit cards and get $10,000 on each one. You can buy all your fixtures and fittings on your credit card these days, and quite a lot of tradies will do their invoices on credit card these days. As long as you pay that debt off straight away as soon as the property settles, then it’s not a bad way to actually fund your renovation,” she says.

Other tips

You should also never underestimate the power of your parents or siblings or friends, says Ms Barber, who in part got started by borrowing from loved ones. “If you are going to borrow money off them for a short period of time, make sure there’s an incentive, so you give them a few above and beyond what they would get for the money sitting in their bank account - or you give them a sliver of the profits,” she suggests.

Finally, Ms Barber gives two tips for being looked upon favourably by the bank:

Firstly, protect your CRA by avoiding interest free deals and higher purchases.

Secondly, treat your finance application like a job interview - “If you’re going to go and borrow a couple of hundred thousand dollars from a bank, go in there looking like you can afford to pay back the loan. Personal presentation is really important.”