When I purchased my first home... Part 5: renovating your home

Since purchasing my home 13 years ago, I have completed multiple renovations, including paint inside and out, new carpet, skylights, ducted air-conditioning, a large covered pergola, replaced the roof and gutters and installed an in-ground pool, leveled and landscaped the backyard and added an ensuite bathroom.

That process was done over a 5-year timeframe; some of it was paid using our cash and some was financed by a loan top-up from our existing lender.

Paying for renovations using cash is easy, however, paying for a renovation and borrowing the funds is a little different.

It all depends on how much equity you have, for example, if you have 20% or more equity in your home and the renovation costs are around $100,000, then the bank may just require a letter from you itemising the renovation costs and confirming the renovations are non-structural.

You ideally want to avoid a construction loan as the bank will want to control the payment of funds and you will likely incur drawdown costs and potentially a higher interest rate.

Top tip #1

One good idea, if you have some equity but not a lot is to either use your own funds first to complete stage 1 of the renovation, perhaps pay for the bathroom renovation first and then get a bank valuation, which should come back at a higher amount, as you have improved the value of the property, and then borrow from the bank to do stage 2, such as a new kitchen.

Top tip #2

If you are doing a large and expensive structural renovation (more than $100,000), such as extending to the rear of the property or even going from a single storey house to a double-storey, then selecting the right lender can make your life much easier. Some lenders require quotes from builders and others will just accept a letter from you.

This is important when you get down to the type of building contract you go for. The one that I believe protects you the most is a fixed-price building contract as you know for sure the exact cost to build. When you do a more bespoke renovation, such as a lot of Eastern Suburbs properties, then the building will often want to go with a cost-plus building contract, and in my opinion, and the banks these cover more risk for you as you are covering any cost overruns.

My job as a broker is to understand your requirements, research your options to select the right lender for the specific purpose you require. Let's start working on your loan here.