Renovating a property is a big decision, because it requires a lot of money. However, the reward for spending that money is also worth it. It improves your standard of living and raises the overall value of your house.
It is important to understand that renovating your house is not as easy as it sounds. It can be as tiring as building a new house. Therefore, it’s important to choose right financing option for renovating. Outlined below are some things you need to keep in mind when you select a refinancing option for this purpose.
Get a Clear Idea of Your Budget
Before you apply for a loan, it is important to know what your budget is. There is a high risk of default on a loan if you fail to calculate your budget correctly. A lot of home owners realise later that the overall cost of renovation is much higher. This means that you will have to reapply for the loan and lenders do not like it. Therefore, you could consider taking out a loan of $150,000 if you think the budget will be $100,000.
Home Equity Loan
You can also get a home equity loan if you are planning to upgrade your property. For example, you can get this loan when you need to paint your house or install a new kitchen or bathroom, or if you wish to do any other kind of construction.
Although, it involves a huge cost of renovation, yet it is not as high as the cost related to structural changes to the property. A person can get a loan of up to 80 percent of the property price. For example, if the value of your property is $600,000 and you have $300,000 left, the value of home equity will be $300,000. You can secure a loan of up to 80 percent of this home equity value.
This type of loan is like a large credit card. You can use it for various purposes, such as for cosmetic renovation, to buy a car or for other investments. You can quickly gather interest with home equity loans. If, however, you do not make regular repayments, it is important to consult a broker as they can help you find a suitable plan that is in line with your goals.
The construction loan will be quite useful if you wish to make structural changes to your house. For example, you can choose to take out this loan if you are planning to add another room to the existing structure or if you are making substantial changes to the roof. A benefit of using it, is that lenders charge interest only on the outstanding amount and not on the maximum amount of the loan.
This loan allows you to save a lot of money. All you have to do is pay interest on the amount you choose to spend on renovation. This is why brokers typically request borrowers to apply for only one loan.
A borrower needs the following when he or she applies for a construction loan:
- A fixed price building contract
- And approval by the council
At every stage of renovation, a lender assigns a valuer to assess the progress of your construction. Seek advice from your broker in this regard in order to reduce the paperwork involved in the process. She can also assist you in finding a refinancing facility of your choice.
Seek Advice from Your Broker
Last but not the least, always seek advice from your broker. Based on your goals, he or she can guide you towards to which type of loan is suitable for you. Hunter Galloway helps you identify a loan that provides the options you seek, because if a borrower does not properly plan a construction loan, he or she might end up in a pile of debt.
Therefore, you must always ask the broker about what loan you are eligible for. If you fail to get the right loan, it might adversely affect your bank security. A broker can help you find the right option that fits your needs.
Chat to our team now, call 1300 088 065 or email Nathan.Vecchio@HunterGalloway.com.au