How do people go about funding renovations without using cash?
For background, I have a PPOR with plenty of equity. I want to refinance, and get an equity loan for the deposit plus stamp duty if possible, and an IO IP loan with another bank.
Do I get a separate equity loan? Or do people prefer line of credits?
On what basis will they lend me money for renos? Is the fact I have equity enough?
Also I want to avoid any path that reduces my servicability.
My advice to clients is to use a LOC to access equity and once it is used convert this to a term IO loan. This way you are safer from a tax deductibility point of view.
Also make sure you keep investment and person borrowings separate, in different loans.
To borrow you need income and equity. Having equity is not enough as you must be able to demonstrate that you can pay the loan.
All borrowings will reduce serviceability
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thank you so much Terry.
Is it a fair assumption that if I am approved for a certain amount, but my house plus the reno amount is that approved amount, then it would be fine? (EG approved for $400k but buy $350K IP and $50K for the reno for sake of argument). Or impossible to say?
Would I be able to combine my equity loan for the deposit and the LOC for the reno together in an IO loan once it is all said and done?
Using a LOC do I need to prove my spendings? eg do I need tradespeople quotes and adverts of the tiles I plan to buy etc? Or show them my receipts? Do I need to prove it would add value to the IP?
You wont get a renovation loan approved on a LOC basis with equity as Terry has mentioned.
If you are using your PPOR as security then the purpose of the funds will immaterial and your limit will be approved irresective of the use.
Just make sure that taking the LOC doesn’t prohibit you buying the IP because servicing fails.
Balancing between the two is the way forward and be selective in your lender choices.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Jojo,
Any additional borrowing is always going to reduce your serviceability for future investments, the bank has already put in calculations that if you earn X you would be able to have the amount Y in funding.
You can increase further funds either on the current loan or a new split it can be used for a renovations as long as there is enough equity. If it is major renovations like extension of a new room etc (non cosmetic) you may need to provide construction documents as supporting information.
If it is small renovations of $50,000 it is a simple cash out, you can even provide some quotes to evidence it. As above it is strctural then more information might be required.
Hope this helps =D
Hank Hong
Email MeGoogle Hank Hong he's pretty cool.
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