In this edition of Fairley Trade Chat, we caught up with James Algar from Mortgage Choice Dee Why.
If you’re not moving at the moment, you’re inevitably renovating, or at least planning to! And with that comes the tricky dance of finance.
But it doesn’t have to be hard. Investing time with a finance professional can help alleviate stress and put you on the front foot when it comes to financing your dream home.
What financial options are there for families looking to renovate?
Depending on the scope of your planned home renovations, most banks have options available for either raising a sum of extra loan funds for proposed non-structural renovations or for major/structural renovations.
While people will typically discuss their renovation plans with different companies to determine the best fit, they surprisingly don’t often use the same approach when it comes to funding the renovation.
You would be surprised at how easy increasing a home loan to fund renovations can be with some lenders compared to others. I often speak to clients who have been knocked back by their bank or told they must have a fixed price contract in place when other mainstream lenders are happy to help with far less restrictions.
How do you determine financially whether it’s better to move or to renovate?
Everyone has different needs and expectations, but our first priority is to understand our clients’ short and longer term goals.
Moving can be a very costly exercise, so we help clients compare the cost of both options side by side. Each can be equally expensive or very different depending on your taste, so it’s important to take into account ALL of the costs including Stamp Duty, real estate commission, legal fees, removalists, marketing etc. versus renovating, which includes added emotional or unseen costs beyond the build like the stress of living in a building site or renting elsewhere.
This exercise helps people work through the decision, and to determine if the end product is worthy of the cost either side.
A construction loan assists clients and the banks in managing the risk and budget associated with a major renovation in a very transparent, but sometimes restrictive way.
Such loans provide a framework for both the builder and client to ensure payments and works are completed in an orderly fashion with a clear budget agreed and contracted for each stage of the build.
Construction loans require Fixed Price Contracts to have been signed, and typically the bank will handle all payments to the builder at pre-agreed stages such as commencement, slab, framing, roofing, lock-up etc.
At the end of each stage the builder invoices the client and once the client has approved the invoice, the bank is asked to release funds or complete an inspection and then release funds known as a progress payment.
Construction loans are generally best suited to major building works and where there is a very clear scope of works agreed well in advance. They are often not suited to smaller projects or where there is potential for variations throughout the build.
Can you utilise your offset account when it comes to funding your renovation?
Using an offset facility (and understanding how they actually work) is a really good idea for many people and can help avoid unnecessary bank interest fees during a build project.
Using funds from an offset account can save a lot of hassle too by giving the customer direct control of the budget funds from the outset which can remove delays and allows for a degree of flexibility in the budget too.
Outside of the building costs, what else do you need to consider when financially preparing for a renovation?
We all know projects can run over budget. Understanding how this happens and how a customer can cope with changes to a budget, without critical delays to the schedule is just as important.
Council bonds, reports and Certification costs can also pop up and will often not be included in the construction quotes provided up front to a client.
Getting the right advice from the get-go can make all the difference.