"We knew we had built considerable equity in our home but were not sure of exactly what to do with it."

The Humphries Read case study

Home loans for building or renovating

If you find yourself making decisions about whether to renovate or build, there are a lot of things to take into consideration. In terms of finance there is a big difference between cosmetic home improvements and structural renovations.

A loan for cosmetic improvements is usually straightforward if the applicant has equity in their property.

A loan for structural improvements can be more complex, especially when there is insufficient equity in the property at the time of application. In such cases, the outcome of a loan application will depend on how much value the renovations will be adding to the property.

If you’re building a new home, then you’ll need a construction loan. The application process is different from a traditional home loan, with more documentation required – for example, building contracts.

The important thing about any construction loan is structuring it so the money is available as and when you need it, so you can cover costs as they come up. When it comes to setting the budget, expect overruns and always factor in additional costs. Also, you may need to factor in the cost of renting another home for several months – and two sets of moving costs – so be sure to expect these costs and over estimate your requirements.

Once your loan application has been made, the amount for which you apply cannot be changed. If there are budget blowouts, then it’s you who will be meeting the costs. If you’re looking to renovate a property for investment purposes, it’s very important that you seek the advice of your accountant to ensure there are no tax implications. Speak with your Smartline Adviser first about all the lending possibilities and scenarios, and then make the appointment with your accountant.

 

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