Constructing, Adding On and Renovating

Construction of a new home, doing additions to a new home and renovating are all quite different and are treated differently by your lender.

CONSTRUCTING A NEW HOME

Buying a block of land and building your new home on it is often an exciting and satisfying project. People do this for different reasons but the desired outcome is usually to have a brand spanking new home where you want it, built the way you want it, that has none of the baggage that may come with an established home. It takes time and there are a lot of decisions to make along the way but most people are pleased with the result.

Obtaining a Building Loan

Most lenders will not lend money to owner/builders. This means that you must utilise a licenced builder to construct your home and you should have land to build on. You can go about it two ways. Firstly, you can select a builder and choose a plan from a number of different home plans the builder has. This is possibly the easiest and most economical way. Builders also often have a selection of land available for you to build on. The alternative is to have an architect draw up plans to your specifications and then ask different builders to quote on the plans. Once you have determined the way to go and arrived at the total cost, you can ask your lender to approve a building loan, usually known as a construction loan, for you. The lender will require as a minimum:

• The plans and specifications already approved by the local council
• The executed building contract and tender
• A full loan application

The lender will require a licenced valuer to confirm the building price and suitability of the land and dwelling. Once approved and the building has commenced the lender will pay the builder in stages after carrying out progress inspections. You will be required to contribute your full deposit prior to the lender advancing any funds from the construction loan. If applicable, FHOG is payable and available at the first progress payment upon laying of the slab.

Upon completion, the builder will be fully paid and you can pick up the keys. Now the work of establishing a new home starts. Make sure you have accurately budgeted for the cost of landscaping, curtains and carpets etc. If the cost of these is high and is included in the building loan amount you may have to provide invoices and evidence of installation to the lender prior to release of funds.

The Iden Money “Go Between” loan can be used as a construction loan if you want to live in your existing home until it is time to move.

CONSTRUCTING ADDITIONS TO YOUR HOME

Construction Loan for Adding On

Over time, your needs change. You are either upsizing or downsizing and require changes to your home to allow for this. Whether it is additional room that you need as your family grows or less room but in a different layout, it may require structural alteration. It is at this stage that you must decide if making these changes is a worthwhile monetary exercise. If the completed work costs more than the added value to your home it may be worth considering selling and buying again. If you are prepared to move you should cost out both options.

Additions and major alterations are classed as structural improvements and are therefore generally not called renovations. They usually include building of a structural nature such as adding a room with a roof or moving walls or installing a swimming pool etc. These things have a real effect on the value of the property and are considered a major construction project. They must have council approval.

The same process as for a construction loan is utilised and the additional work should add value to your home. The value of your property after completion of the additions should be sufficient to cover the increased loan amount. Even if you don’t borrow more money, it is a condition of your loan contract that you must advise your lender of what you are doing.

RENOVATING YOUR HOME

Renovation Loan

Renovations do not include structural items. They usually comprise of things such as refurbishing your bathroom or kitchen or adding some brick paving etc. Often, council approval is not required. Many people borrow additional money on their existing home loan (renovation loan) to do this, and provided you have equity in your home it is a straightforward exercise. A renovation loan does not usually incur expensive fees.

To read more about Iden Money's construction loans click here.

Iden Money can help you with queries on any of the above – call 1300 334 336 or send us an online enquiry.