There are plenty of ways you can finance your home renovation projects including using your own cash, your home equity, a line of credit, a personal loan, redraw facilities, refinancing your mortgage and more.
Whether you’re doing a home improvement like a kitchen update, or you want to renovate your home for the purpose of selling it to increase the value of the property, a construction loan is a good way to fund it.
What is a construction loan?
A construction loan is a type of home loan used either for building a home or for doing a major home renovation. It works quite differently from a regular home loan because the loan is drawn down in stages as the work progresses, rather than all at the start.
How does it work?
With the completion of each stage of renovation, your lender will arrange an inspection of the property and then pay the builder directly for the completed work. Each progress payment is called a drawdown.
The number of drawdowns will depend on the agreement between you, your builders, and your lender. Loan repayments in constructions loan are interest-only but once the entire renovation is completed, the construction loan will revert to principal & interest repayments, unless you request to extend the interest-only period.
How to get a construction loan
Getting your construction loan approved has a different process compared to a regular home loan. You’ll need to present to your chosen lender the professional plans for your property like floor plans, and the kinds of materials being used, so an appraiser can go over your plan and determine how much the expenses will be once the property is completed. Once you’ve found a suitable loan, you will then need to make a deposit like any other types of loans. This serves as a security for the loan.
The team at loans.com.au can help you determine if a construction loan is suitable for you. Contact us today to get your home renovation started.