We are looking to spend about $100,000 on renovating our home. We think it worth about $750k and we owe about $300,000. I have had a lot of experience as a project manager and instead of contacting a builder we want to project manage the renovations and the tradies ourselves. Will that impact our ability to borrow the money for the renovations?

Hi Martin,

Not necessarily, but you just need to make sure you talk to the right lender, in the right way.

There are two ways banks could look at what you're looking to do:

1. Construction loan. If you go to a bank and tell them you're going to be making significant structural changes to your property, the banks will classify this as a construction loan and will force you to have a fixed price building contract in place. As you know, these contracts have a builder's margin in them and you can't control funding.

2. Cash out loan. The other option is to obtain that money now, before you begin construction and tell the bank that the money will be for future personal use. This will allow you to access all the money and project manage the property from your end rather than a fixed price building contract.

The key here is choosing a lender who is comfortable with cash out and has a suitable policy to match.

If you want to discuss this further, feel free to get in contact.

Kind regards,

Tim Russell
0400 530 868
tim@multipartfinance.com.au
www.multipartfinance.com.au

Hi Martin,

I also agree with Tim. Meet with an experienced broker who will assess your borrowing capacity and the loan product that will suit your needs and you should then be able to borrow the money you need (subject to verification) to complete the project on your own terms.
Best of luck with the project
Regards

Scott

Hi Martin,

Exciting times - renovations is ALWAYS fun and being able to use your expertise will enable you to not only put your own flair to the property but also retain control of the development. Many many people do this so you are in a space that most lenders have experience with.

That being said, many have experience, but NOT ALL like doing this or will consider this. Your question was, will this impact your ability to borrow the money? As Tim said, you have those two options and it sounds like CASH OUT is the best way to go for your needs.

The market for lenders who will provide cash out up to $100,000 is reasonably small and you will only really get one chance to get it right. The reason behind it is critical when you consider how this loan is presented to the lender (as Tim pointed out).

Let me explain why. As I highlighted earlier, almost every lender, pre-GFC provided large cash out without asking questions about what it was for. This came back to bite them following the GFC when there were many people who drew the maximum amount of equity out fo their property and used it for family holiday, investment property, cars, boats etc, and then when the market tanked - they NEVER paid it back & the bank repossessed their properties that had now experienced a deterioration in price and in many instances were worth less than the loan amount. Meaning the banks made a huge loss.
Banks decided to change their ways - MOST tightened up their policy in 2008-2009 to limit the amount of cash out to $100,000 and anything over and above would need to have a clear explanation about what it was being used for.
So you will find many banks will restrict it to this amount for cash out.

The second part of this is, as soon as you mention your doing renovations to your place the most banks will ask if it is structural. If it is they will ask for a fixed price building contract that is provided by a licensed builder who is not the owner. This may trip you up?
Understand, that as soon as you alter the security property you live in the bank - should know how it has been altered.

Im sure you saying, Craig thats all pretty bas news. But no! there are lenders who do construction loans for owner builders and I encourage you to explore that path and its important I explain why.

Banks have seen many properties get renovated and run over budget & the bank ends up with a security property that CANNOT obtain a certificate of occupancy meaning the bank cannot accept the property & the mortgage needs to be paid out. (where you may be abel to go to another lender to complete it - the price is hefty) The banks usually like to know what your doing and what the costs are so they are FULLY aware of how their security is being affected. It also protects you if you need to get the property completed - the bank already knows you may . . .have the roof off and have run out of money - they will be more motivated to help rather than finding out afterwards.

Lots to digest I know, but hopefully this helps you form an informed view of how banks may view what your proposing and how you may be abel to get the best option.

Of course, most good mortgage brokers will show you how to do this without compromising your position with the bank or putting you at any risk.

Thanks for asing

rgeards

Craig
0481 383 490