Renovating your home
So you've been to dozens of Open Homes and decided you prefer the location of your current home? Welcome to the ranks of the renovators!
In this section, read about some common pitfalls of renovating, and what items will be required to obtain finance for your renovation
Common Pitfalls for Renovators
Renovating is very similar to building and most of the same principles apply. A common pitfall of renovating is that it is easy to underestimate the cost and/or the duration of the renovation job, i.e. how long it will take and how much it will cost.
Never under-estimate the time factor for renovations and remember, you have to live through all the disruption of the renovation. Although, for a major renovation, you may have to move out for a few months.
As with building a house, you will need to have an architect or draughtsperson draw up the plans for your renovation, then apply for the relevant consents from your local council. For a substantial renovation, a registered valuation showing the projected end value of your home will be required by the bank.
The bank will generally lend up to 80% of the present value of your home (before renovations) in one lump sum (subject to meeting the normal debt servicing criteria). This can sometimes be sufficient to complete the project, depending on the amount of equity you have in your home already. Any additional loan funds will be released in "progress payments" during different stages of renovation. Your valuer will usually come on-site to provide updates for the bank at key stages of construction.
A revolving credit home loan can be a good option for a renovation. Also known as a "flexi" loan, it is much like an overdraft, which allows you to draw down funds as and when you need them. You only pay interest on what you have drawn down at any time, which provides ideal flexibility in this situation. Once you have drawn down all funds and completed your renovation, I can help you decide on your final loan structure.
Additional Items Required for Renovation Finance
To have your finance approved for a renovation, there are some additional items needed in addition to the normal paper-work:-
- A registered valuation of the land and projected end value of the home when built
- A fixed price* building contract from a registered builder for a substantial renovation, or copies of all quotations for a minor under-taking
- Copy of relevant building consents
- Copy of all-risk insurance policy (unless provided for in the building contract).
*Important note - If you are considering a labour-only contract with a builder instead of a fixed price contract, we need to run this idea past the bank early because some banks will lend you a lower overall percentage of the project than if you had a fixed price building contract. This is due to the high risk that your project might run over budget if there is no fixed price contract in place.
For minor renovations, some of these items will not be needed, so contact me early in the process for advice and information based on the specifics of your situation.