Some homes are affectionally called ‘renovator’s delights’ by realtors when put on the market as they need structural work. However, before buying such a property, work out where you’ll get the funding from to carry out any needed repairs. Buying a renovator’s delight without setting yourself a budget or knowing how to fund a renovation could see you losing sleep at night. So, to avoid this situation let’s look at 6 of the best ways to fund a renovation.
Finding the Right Finance For You To Fund a Renovation
There are several ways that you can fund a renovation. However, not all are ideal for everyone and their situation. So, it’s a good idea to consider your options before you buy. This strategy will help you to set a budget, so you know exactly how much you can spend. Plus, it will also allow you to complete your renovation faster as you’ll have funding when you need to carry out work, rather than waiting for finance approval.
What’s the bottom line? Well, not all ways to fund a renovation will suit your circumstances. So, the key is finding the right funding for you. Let’s look at 6 practical ways you can fund a renovation now.
Option 1. Using Home Equity
Using the equity built-up in a property is one of the most common ways to fund a renovation. This form of finance lets you borrow against the property, providing that you have more than 20% worth of equity in the home.
The benefits of this type of finance are that it is often faster and easier to apply for, as you already have an existing loan with your lender. The pitfall though is you may not have enough equity in the other property to borrow enough to complete all of your renovation projects.
Those of you who have a redraw facility can also consider using this to fund a renovation. The redraw also uses the equity in your home, so if you chose to use the redraw then you need to be mindful that your home loan interest will increase due to your balance being higher. If you’re going to use your redraw to fund a renovation, then ideally you should start paying off extra on your home. This strategy will increase your renovation funding and is an excellent way for you to keep on top of your interest.
Option 2. Refinancing Your Home Loan
Refinancing to fund a renovation is another frequently used method to raise capital. Want to know the best part? When refinancing you can often negotiate a better deal on your existing home loan so that you’ll save more. But, before you rush in, make sure you know what costs are involved, and don’t be afraid to ask about the loan terms and conditions.
The benefits associated with refinancing include:
- Lower interest rates.
- You can pay off the loan faster.
- The amount you can borrow may be larger.
The disadvantages of refinancing are:
- Making minimum repayments means that you’ll end up paying more in interest.
- Borrowing more is going to add to your interest costs.
- Funds may come through slower.
- Refinancing costs can add up.
Option 3. Applying For a Construction Loan
If there’s no equity in your property, then you can apply for a construction loan. Typically, this loan is based on the value of your property after completion. It gets better: a construction loan also lets you draw on funding as you need it, rather than releasing the whole amount all at once. This approach could save you more in interest over the loan term. But, here’s the kicker: you’ll need to apply for a new loan if you elect to use this form of funding. For some, this can mean a longer wait, as well as gathering and then submitting the required documents to gain loan approval.
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Option 4. Using An Overdraft
A bank overdraft links to one of your bank accounts. This method of finance enables you to draw up to your credit limit. Here’s the deal: you will initially use your own funds before you start using the overdraft. Then, you’ll begin to pay interest on the overdraft funds that you use.
An overdraft is ideal for those renovators who are looking to renovate over time, as you’ll only pay interest on the funds that you use, not the whole amount. But, you’ll need to be mindful of costs, and look to pay back your overdraft as quickly as possible, so you reduce your interest.
Option 5. Using a Credit Card
For those who can pay off their renovation fast, a credit card may be a great way to fund a renovation. But, it’s vital that you look for a zero-interest card for a lengthy period as this will give you enough time to pay off your debt without incurring much interest. If you opt for this option, remember that credit card finance can be one of the most expensive forms of funding, so if you think you’ll need more time to pay off your debt, then consider other options.
Option 6. With Your Own Cash
If you have a savings fund, which is sizable enough to fund your renovation, then this is one of the cheapest ways to renovate. But, you’ll need to make sure that you keep some monies aside for unexpected expenses and that you have enough for everyday living.
Are you seeking the right type of finance to fund a renovation? Then contact eChoice, our brokers have access to 100’s of products, so we’ll find you a competitive rate.
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