Thinking of investing in a doer-upper for your perfect family home? But what about the mortgage? Can you get a mortgage and have the renovation costs included? Cowan Building investigates.
You found it! The perfect little project that you can turn into your dream family home…it’s on a great sized block, nice neighbourhood, walking distance from the school. AHHHH It’s just perfect! But it needs work…perhaps a lot of work. How does the mortgage application provide for this so you can afford the renovation, and still afford to live?
It’s important to first get your finances in order and take a good look at your loaning capabilities and your actual budget. Right down to the infinite details, even counting the daily coffee and the newspaper subscription!
Explore your real cost of living, your current debts, insurance, bills, rates, etc and how much you need to live from week to week. PLUS: your breathing room or your buffer money for all of life’s unexpected events (cue the fridge dying or the kid’s school camps).
Renovation Homework
Some renovations can blow your budget out of the water! Particularly if you have not done your homework or spent the extra money, in the beginning, seeking professional advice from the experts. It’s highly recommended you seek advice before you purchase your dream reno. Having a builder examine the home may point out some hidden issues such as a leaking issue or damage the untrained eye cannot see. It’s vital you get the approximate cost from a professional when investing in a renovation.
“Once you have a clear idea of how much you can afford to borrow, and how much you need to borrow, it’s time to book an appointment with your bank manager or seek out the advice from a mortgage broker. ”
The debate between if a bank or a mortgage broker is better for loaning is still raging. The best advice is to take advice. Speak to as many people as possible and make up your own decision to get the best out of your loan and the interest rates on offer.
Loan for Renos & Property – Can I get it all in one?
The simple answer is - yes. But your finances will need to match up. It’s important not to overstretch yourself and take advice from your bank or broker in regard to interest rates and if you chose to fix or float your loan.
Life happens, unexpected bills happen and there is no point ending up on struggle street and so stressed out you are unable to enjoy your new investment or the renovation process. Or worse still, being unable to finish the project because of life’s curveballs. Examine what renovations are vital and what things could possibly wait a few years as you build equity in your new home.
Renovation/construction loans are for major work and these loans normally pay out in stages rather than a lump sum amount - like with a property purchase. Get as much information as possible and shop around for the best interest rate and deal. It’s also important to remember that even with utilising a broker, who will offer the service for free but will take a commission from the bank, doing your own research into what the bank can offer you directly is certainly worthwhile.
It is paramount you get the right builder and the right quote for the work that needs to be done. Be very clear about the important things that need to be done asap – like a functioning bathroom or added rooms, etc, and the things that could possibly wait. DIY is not a good idea for major renovations particularly if you have no experience in building or construction.
Smart DIY could save you money, but it also could blow a massive hole in your budget. So be careful with the jobs you chose to do yourself and the ones you seek professional help for. Remembering that some jobs, such as plumbing and electrical will need the experts or you may find your insurance company will not cover you for any mishaps that are caused due to the DIY.
Having a professional builder and project manager can also take the headache out of your renovation.