How to Fund a Renovation – Finance & Loan Options, Grants & Incentives and Hidden Costs
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Renovations can be budget friendly or a serious cash splash. Whether your plans are for a budget DIY makeover or a full-fledged renovation, financing the project is one of the most important steps. Discover the best finance options for your renovation project.
Saving up for a home renovation can leave you living in a run-down home for years so often a loan can be an attractive choice when it comes to financing a project.
Here are some options to finance your renovating:
Use your equity
The easiest way to get a bank to finance your renovation project is to use the equity in your home. Effectively this is when a bank checks how much your home is valued at compared to how much you owe on your loan. If it’s higher than what you owe, they will allow you to increase your debt, by a specified amount, to pay for the renovation. To check your equity, contact your bank or use an estimate calculator online.
Redraw on your home loan
If you have a redraw facility and have made additional payments on your home loan, you may be able to redraw these funds to pay for your renovation up to a specified amount.
Another alternative is speaking to your bank, or other lenders, about refinancing your existing loan. This is when you approach your lender – or another lender if you are prepared to change institutions – and basically renegotiate a new home loan that includes the extra funds you need. If you take this option the terms of your borrowing agreement will change, so it’s important to know the details including your interest rate and whether it will be fixed or variable and take note of any annual loan fees. This may also be a good time to consolidate all your debts including car loans, credit cards and any other loans to make your finances less complicated.
Take out a construction loan
For major renovation projects you may need to take out a construction loan. With a construction loan you receive your loan in increments, known as progressive drawdowns in order to make payments throughout the course of the renovation.
If you don’t have enough equity in your home but only want to carry out a small renovation, then you may consider taking out a personal loan. These types of loans usually range from $5000 to $10,000 and can be processed within a couple of days. But beware, they generally attract higher interest rates compared to home loans, and although easier to obtain it may end up costing you more in the long run.
You should seek independent financial advice before making changes to your home loan or taking on additional debt to understand the impacts on your financial situation.
Build on your equity
Create the home of your dreams: refinance your loan and use your equity to renovate.
Where to save and where to splurge
It’s important to use your hard-earned cash wisely, so there will be times to splurge and times to not waste your capital. But with so much possibility it can be difficult to know where your investment will have the biggest impact.
So here is a quick guide:
Where to splurge
Every project has a budget, but there are certain areas where it is actually wise to spend more money to get more bang for your buck.
Fittings – Brass taps, decorative handles, and stylish doorknobs and shower heads are the details that catch people’s attention, and although they seem fairly small these additions make a big impact. So, paying extra for quality and fancy fittings is worth it, but plan ahead and do the math because there are plenty of fittings to be installed around the house, and the cost adds up.
Benchtops and lighting – Basic tiles and paint colours won’t eat too much into your budget so splashing on a feature piece for your living room or kitchen is justified – especially when it comes to that stone or marble benchtop, or a pendant lighting piece.
Quality appliances – Buying cheap appliances is one of the most common renovation mistakes. Firstly, budget white goods do not have longevity or great energy ratings. Secondly, quality, and high-end brands look better, especially when you have matching appliances from a well-known design brand. If you are on a tight budget focus on the main appliances first like the oven, fridge, water heater and dishwasher.
Flooring – Your floor is the unsung masterpiece of a house – noticed by everyone but always forgotten. It runs throughout the house and ties everything together so be willing to spend some money as cheap flooring is simply not durable.
Heating and cooling – Having your home an ideal temperature all year round is priceless and should be a priority. If you have the budget to consider a split-system or a multi-room system to target specific living spaces, do it. Choosing a quality system pays dividends in comfort and lower power bills.
Where to save
Re-use or refurbish – Avoiding buying new materials and instead work with what you’ve already got. For example, painting bathroom tiles is much more cost effective than ripping them out and replacing them. This also goes for kitchen cupboards if you can keep existing shelves and replace or update the cabinet doors and add a new handle.
Use existing electrical and plumbing connections – Choosing to work around existing connections will save you thousands of dollars. So, try and purchase appliances that will work with the space you’ve got.
Avoid structural changes where possible – Removing a wall can open up a space dramatically and can be done in a budget renovation – as long as it’s not a load bearing wall.
Choose standard door and window sizes – Anything custom-made is going to cost more, so when you can, avoid choosing non-standard windows and doors. Also, buying standard frames in bulk is cheaper and can help create consistency throughout the house by installing the same doors and windows in most rooms.
More from the ultimate home renovating guide
Extra costs are inevitable in any building project. But the trick is trying to minimise the impact by preparing for and responding to the unforeseen challenges.
Here are some costs it might be worth planning for:
- Asbestos removal
- Additional trade costs
- Variations in the renovation not included in your fixed-price contract
- Hidden damage from damp or termites
- Insurance fees
- Delays and additional building site costs
- Accommodation during construction
Renovation grants and incentives
Renovators should check whether they are eligible for any grants, rebates, or discounts, as in some cases this could add a small fortune to the budget. Although, incentive schemes change from state-to-state and year-to-year, so some research is necessary.
Here are some current options that are available to check out right now.
In 2020, the Federal Government announced the $25,000 HomeBuilder grant that owner-occupiers can put toward a renovation worth more than $150,000. Eligible applicants must have an income below $125,000 per year for an individual, and $200,000 for a household.
If fixing a rental, an owner can claim a tax deduction on the cost of repairs – including construction and materials – in the same financial year the work is done. However, if additional work takes place or an upgrade is also carried out as part of the job this is considered capital improvement and cannot be deducted.