Rising Tide Blog

How to finance your home renovation

Posted by Matt Hale

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It’s been an interesting few years in Melbourne real estate, but now that the market is beginning to slow down, many would-be buyers are opting to stay put and undertake renovations and home improvements rather than selling up.

It’s a smart strategy, especially when you consider the costs of buying and selling. Expenses like agent selling fees and stamp duty can really add up, and for many people, a home renovation can offer a far more affordable alternative – but it’s important to get your finances in order first! Before you dive in, take a look at our tips to help you fund your home renovation.

Find out what your home is worth

First and foremost, it’s a good idea to get an accurate valuation of how much your home is currently worth. If it’s been a while since your last valuation, you might be pleasantly surprised at home much your home has increased in value. Over the last few years, many Melbournians have seen significant growth within their properties, and having a good amount of equity within your home means you’ll have plenty of room to move when it comes to financing your renovation.

Maintain realistic expectations

With that being said, it’s important to keep your expectations realistic and avoid getting caught up in the excitement. In the fallout of the Royal Banking Commission, banks are making it increasingly more difficult to access equity in the form of cash out, especially for sums over $100,000 which may be required for structural renovations. Be aware that what you might have been able to borrow a year ago, you may not be able to borrow today.

Consider a Fixed Price Build Contract

One way to increase your borrowing power is to consider using a Fixed Price Building Contract (FPBC) between you and your builder to legally outline the details of your renovation. When a FPBC is used, banks will generally value your property as if the renovation has already been completed, which in turn means they’re willing to grant you access to a large amount of money. However, it’s worth noting that when a FPBC is used, the lender retains full control of the funds, and there can also be additional fees involved.

Look at all of your options

As with all major financial decisions, it really pays to look at all of your options before making any commitments. While most of the bigger banks are tightening their lending criteria, there are still some lenders willing to provide ‘cash out’ for renovations provided there is ample equity within your home, and the value of your property outweighs the value of your debt by a substantial amount – which means you may be able to skip the FPBC process altogether.

Talk to a trusted mortgage broker in Melbourne

Prior to engaging a builder, it’s definitely worth catching up with a trusted mortgage broker who can help you determine your ideal strategy and point you in the direction of a suitable lender, as well as provide further advice specific to your own personal financial situation.

At Rising Tide Financial Services, we’ve helped countless Melbournians finance their home renovations and we’d love to help you too. To book an appointment with one of our award-winning financial experts, give us a call today on 03 370 330 287.