You have found the perfect location for your dream home, it’s close to the schools you are after, the shops you like, great parks, transport nearby, everything is just perfect! BUT, the house is not perfect, in fact it’s not even ‘salvageable’. Or, maybe you are already in your forever location, but grown out of the house and a renovation project is going to tip the budget over. Looks like a knockdown rebuild project is the solution to get you on the path to having the ‘best house in the best street’.
Just like any property purchase decision you need to look at how the numbers stack up to establish a budget based on your realistic capacity to manage the debt repayments. Financing a knockdown rebuild project can be a bit complex, so it is best to get some advice from a home loan specialist before you commit to any building or sales contracts.
Knockdown rebuild with your current home
The most common way to finance a knockdown rebuild project is with a construction loan, which is structured to allow you to draw down on borrowed funds at various stages throughout the project rather than as a lump sum. Most lending institutions will allow you to borrow up to 95% of the total cost of the land (which is land value less demolition costs) plus construction costs (if using a registered builder). Some banks may require you to present your future house plans in order to confirm a project valuation and final borrowing capacity.
If you already have a home loan, you will need to speak to a home loan specialist about refinancing to use the equity in your home which will then reduce your Loan to Value (LVR) ratio and may negate the need to pay Lender’s Mortgage Insurance (LMI).
Once you a ready to go with your finance, you are right to move ahead with your project and find some temporary accommodation!
Buy a new property to knockdown and rebuild
If your plans are to stay in your current home while you demolish and rebuild a new home on another block, then you may consider a re-location loan. Generally, these lending solutions allow 6 months for demolition and construction of your new home, and then 6 months to sell your current home. That way you don’t have to wait for the sale of your home before you can begin and you don’t have to move twice.
The amount you can borrow with a relocation loan will depend on the amount of equity you have in your current property combined with its current market value.
It’s all in the timing…
While it is important to have the finance discussion early in the KDR process to ensure the project is feasible for your individual situation, the valuation aspect can vary along the timeline. The value of your property, with the original house intact, is different once the demolition has taken place and before the new construction begins. Valuation in turn impacts your equity position which can affect your LVR and influence the need for LMI. To be sure, a KDR finance specialist is the best bet so that they can structure the lending solution to maximise the best financial position for your needs.