Financing your renovation or build can be achieved in a number of different ways, depending on your current financial situation and the size of your project. So let’s take a look at how a construction loan works, consider how much you could borrow and all those other costs you may not have thought of yet.
A construction loan is a common way to finance the build of your new home, or for major renovations. But if you already own a home and have plenty of equity, you may find that a regular home loan suits you better.
To find out what loan type would suit your needs, contact one of our Mobile Mortgage Managers to talk through your position.
See how much you could borrow with a construction loan on the ‘How much can I borrow?’ tab.
This is a single fixed-price contract with the builder that specifies a completed property or renovation. The property is ready to live in, including:
There is no more money to spend, no more work to do.
Those contracts may need to include a Master Builders Guarantee or a Certified Builders Guarantee.
For a new build, the contract sometimes includes the land purchase.
The minimum deposit required for turn key contract is usually 10%.
This is a single fixed-price contract with a builder that specifies a completed property or renovation to a completely liveable and compliant condition.
The owner is responsible for completing some finishing work themselves or may have other contracts in place.
The minimum deposit required for build only contract is usually 20%.
A partial contract involves a range of sub-contracts managed by the customer or a project manager, and/or a labour only arrangement with contractor(s). This type typically includes relocated and kitset homes. In the case of kitset and relocated homes, the lending is generally limited to the land value only, until the buildings are permanently attached.
The minimum deposit required for partial contract is usually 35%.
If you think you’ll need to borrow money, come and talk to us early on so we can let you know how much you might be able to borrow, and the best way to go about it.
When it comes to renovating you have several options, depending on the size of your project. You could:
A home loan can be set to the 'interest only' repayment option, to help keep costs down while the work is going on. You can change the repayment option once the project is completed.
If you have a Westpac Choices Floating or Offset home loan and are under your loan limit (because you've been paying more than the minimum repayment amount), you can draw the extra money out any time without having to reapply. If you have a Choices Everyday home loan, you can use this facility at any time up to the agreed limit. Or if you need more and meet our lending criteria, you can ask us for a top up - and if approved - we can usually arrange it on the spot.
Read more about topping up and redrawing
You could get the limit on your card reviewed or apply for a new one just for your project, so you can pay suppliers, buy materials on sale and get up to 55 days free credit.
Read more about Westpac credit card options
The amount you can borrow for your build or renovation depends on the current or projected value of your home, your project and your ability to repay the money – factoring in your income and the repayments.
To get an exact answer, talk to one of our Mobile Mortgage Managers or visit your nearest branch. In the meantime here are some general guidelines for how much you may be able to borrow:
Depending on the amount you want to borrow, you may need to get valuations at different stages of the project. And a caution: cost overruns are common during building work, so keep track of your budget as the project goes on. That way you can make adjustments as you go rather than find out later you can’t afford to finish!
Learn about types of construction loans
This varies depending on the finance option you choose, but details about your income, assets and outgoings are essential.
For larger projects and construction loans you could also be asked for your building contract, a valuation report, and the sale and purchase agreement for your section or home (if this applies).
Talk to a Mobile Mortgage Manager
From architects to builders, valuers’ reports to consents, here are some handy tips and a rough guide to how much you might expect to pay for elements of the building process.
It's a good idea to get a PIM (Project Information Memorandum) report about your piece of land before you buy, which you can get from your local authority, and if you have any questions about the suitability of the site, get an engineer’s report too.
To get a PIM you may need a design sketch, but a designer may want to see the PIM first – which is confusing! So be prepared that it could work either way around.
If you want something designed especially for you, you'll need to employ an architect, designer or draughtsperson. Some builders do supply design services, and some companies include the design as part of a package.
For a new home, the design and documentation ranges from around 6-15% of the building cost.
Make sure you get a written estimate or quote, including GST and any set costs, and ask about prices if you want to make changes.
If you're using an architect they can manage this process for you. If you're finding your own builder, ask people you know for recommendations and get several quotes.
Building work costs vary from region to region and depending on the nature of the job. It’s important to include a contingency in your budget of approximately 20%, for the unexpected such as council amends, changes to plans and other unforeseen circumstances.
If you use a registered master builder or a Licensed Building Practitioner you should be able to expect quality work that carries a guarantee on materials and labour. Licensed building practitioners (LBPs) have undergone an application process that includes a written application, verbal testing by proficient assessors, and referees’ confirmation of their work. They keep up with the changing industry and undergo continuous skills maintenance.
Find out more on who LBPs are and when you need to use one here.
A registered valuer can give you a valuation based on your plans. You'll need this for your loan, but it can also help ensure you don't pay too much, or spend too much on renovating an older home.
Another professional who can help you check that you're paying the right price for your build is a registered quantity surveyor (some suppliers also do this job for free). They work out the quantities of materials required for a job.
Depending on the nature of your project, you may need to get resource or building consents from your local authority, based off your plans. Your architect or builder may arrange these as part of their contract with you.
If your project requires building consent and relates to the primary structure of your home, or affects its weathertightness, it's considered ‘restricted building work’ and must be done by or under the supervision of a Licensed Building Practitioner (LBP). You’ll need to include the name of your LBP in your building consent application to the council.
More information on when an LBP is required
Consents can cost anywhere from between several hundred, to several thousand dollars.
Getting consents can take a lot of time, and can be costly if you have to alter and resubmit your plans several times. So be prepared, and have patience.