Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
You have decided that it is time to spruce up your home to get a fresh, new look. Perhaps you need extra space for a growing family, or maybe you want more open space, or just want a more modern look.
While you have a visualisation in mind for your perfect home, there are a lot of questions that still need answering.
Do you knockdown and rebuild, or do you renovate? Is one option cheaper than the other? How long will either option take?
To help you with your decision, here are some important factors to consider when deciding between renovating versus rebuilding.
Consider what areas of your home you would like to change. Are you looking at updating an existing bathroom, adding an additional room, or completely changing a whole part of the house?
If you are working full-time and raising a family, a renovation can become time consuming and laborious. Before you decide to extensively renovate, think about how much time you are willing to put in, and how much time you actually have, to do this type of project. If you do not have a lot of spare time, rebuilding could be the better option.
If you are looking at completing small renovation projects around your home - upgrading flooring, kitchen upgrade - it is likely that the renovation option will be much cheaper than rebuilding.
However, if you are planning on extensively renovating your home - upgrading almost every room, structural changes - it can be cheaper to start entirely from scratch.
As a rule of thumb, a kitchen renovation can cost anywhere from $10,000 to over $50,000. Meanwhile, the average cost for a bathroom renovation can be as low as $5,000 and up to $30,000 or more.
According to the Housing Industry Association, the average cost for building a house on a 243 sqm block is under $300,000, or an average of $1,183 per sqm. If you were after an architecturally-designed home, the cost skyrockets to around $2,152 per sqm.
You also want to think about future costs down the line.
Typically, new homes are easier to maintain as they will likely be less susceptible to termites, have newer building materials, and better insulation which you would not find in an older home.
If you fell in love with the style, story, and history of your home, a renovation could be the way to go to preserve its character. This is particularly the case for the iconic Queenslander-style homes.
Heritage homes tend to have beautiful architectural ceiling designs, timber flooring, classic fireplaces, and the like. The heritage look can be priceless and is well-regarded by potential buyers, so if your home is heritage, consider a renovation.
On the other hand, if your property is starting to fall apart structurally, there may be no other option than to knockdown and rebuild.
Sometimes the age of your home can affect the council restrictions surrounding it. For instance, some councils prohibit houses of a certain age or heritage from being renovated or knocked down. Furthermore, the council will also examine the conditions of the block. If your house is on a flat block of land, a rebuild is likely to be accepted rather than one on a sloped block.
You will also need to obtain a permit if you’re looking at removing vegetation or trees on or around the block.
Contacting the local council before you make any plans to renovate or rebuild is imperative.
Are you wanting the home to be completed quickly? Or are you willing to wait as long as needed? These are questions to ask yourself.
If you are renovating a small room, it can take as little as a couple of weeks to complete while a kitchen renovation can take anywhere between 2-9 weeks.
On the other hand, a knockdown rebuild typically takes between 8-12 months to complete.
Keep in mind that the current tradie and material shortage crisis could extend the time of both a renovation and rebuild.
Here are the pros and cons to consider before choosing to renovate your home:
If renovating is the right path for you, it may be time to consider the different options you could take to finance your home renovations.
You could refinance your home loan for your renovations. The idea behind refinancing to renovate is to obtain extra cash which will fund your renovations. You'll refinance with a new or existing lender and increase the amount you owe to the lender, to gain the renovation capital.
Another way to finance your renovations would be to redraw some of your additional payments on your home loan (if you’ve done so). Of course, you'll only be able to use whatever the additional amount is.
If you need to do some major work like knocking out a wall or raising a roof, a construction loan might be worth considering. Construction loans allow you to access large amounts of money, with the proviso the property will be worth more upon completion of the renovations. It's important to consult someone when considering a construction loan, as council approval and a fixed price building contract from a registered builder are required when applying.
You could also take out a home equity loan (line of credit). Home equity is the difference between the value of your home and the amount you owe on your mortgage. Lenders will allow you to use your home equity as security for a deposit so you can borrow money through a home equity loan.
In order to construct a new home, you will need to obtain a construction loan, unless you have saved up enough money to cover the entire cost of the build upfront.
The structure of a construction home loan differs from a traditional home loan, as the lender will not provide you with the full amount of money all at once. Instead, they will assess your house location, plans, and design to determine the required funding for the project, and will then release the funds in periodic payments to your builder based on completion of each stage of the construction process. This payment process is commonly referred to as a drawdown.
The verdict lies with you.
Renovating and rebuilding both have their own pros and cons to consider.
In terms of cost, if you are looking at only doing small projects around the house, a renovation will likely be the cheaper option. Whereas if you want to upgrade almost the entire house and even alter its floorplan, a rebuild will likely be cheaper in the long run.
However, no matter which you choose, it is important not to overcapitalise. Overcapitalising is when the costs of a rebuild or renovation outweigh the market value it adds to your home. In other words, the cost spent at the time of the renovation or rebuild is not able to be regained when the property is later sold.
Whether you are planning on renovating your current house or building a new home, examining your finances is an important step so you know what you can afford. Both are major decisions and expensive so it’s best to do your research by talking to experts, requesting quotes, and getting detailed costing information.Get pre-approved
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