10 Ways to Finance Your Dream Renovations

Whether you are planning on doing so ultimately for profit or to transform your property into your dream home, renovating where you live is a huge undertaking.

Not only does it involve drawing up plans with meticulous attention to detail and sourcing reliable contractors, but it also requires having the capital to fund the work in the first place. For many people, this can be an issue.

So, how do you finance your dream renovations? In this article, we will highlight X ways you can get the money you need to do the work you want.

1. Personal savings

The easiest way to fund your dream renovations is to pay for it yourself through your personal savings.

However, you should only do this if you have a substantial amount of cash saved up because renovations can be costly. (You don’t want to run the risk of not having enough to cover other eventualities that might arise in your life).

To build up your personal savings consider investing in stocks and shares, making extra cash through a side hustle, selling some of your unwanted possessions and reducing your overall spend. Depending on what renovations you want to do it could take you several years to save up for it organically. However, doing it this way is likely to give you a great sense of satisfaction.

2. Borrow from family or friends

Another way to generate the funds for renovation work is to borrow from your family or friends. However, you should only do this if you are confident in your ability to pay them back as it could potentially cause issues in your relationship if you are unable to.

If you do borrow money, particularly from friends, it would be worth drawing up a manageable repayment schedule. That way you would both know when repayments will be made. You might also want to pay interest on the loan or offer something as collateral should you find yourself in a position where you are drowning in the debt.

3. Use your home’s equity

If you don’t have enough in personal savings or would rather not borrow from family and friends to cover the cost of the renovation work, you could always approach your current bank to use the equity of your home.

If you have lived in your home for a while, the chances are its value has risen significantly from when you bought it. Subsequently, you should have decent equity in the property. Essentially, equity is the balance that is left when you subtract how much you owe on your existing home loan to what it is currently worth overall.

For example, if your home is worth $500k and you still have an outstanding home loan of $200k you have $300k in equity. However, your bank will typically want you to keep your LVR (loan-to-value ratio) under 80% of your home’s total value. For this reason, the LVR on the total value of your home would be $100k, as 80% of the property’s overall current value is $400k.

It is worth remembering that equity is not ‘free’ cash. So, if you access it, you will be increasing the amount you will have to repay on your regular home loan every week, fortnight or month.

4. Redraw from your current home loan

Depending on the terms and conditions of your current loan it might have a redraw facility you can use to fund the renovation.

Redraws allow you to re-access some of the money you have already paid off in terms of the mortgage repayments you have made. The longer you have been paying off your mortgage, the more you are likely to be able to redraw. However, just be mindful that doing this will increase the outstanding balance of your home loan.

5. Refinance your existing home loan

If you don’t have much in the way of equity or repayments you have already made to redraw on, then you should consider refinancing your existing home loan.

Effectively, this means taking out a completely new home loan with a new lender, who pays off the balance owed to your existing provider. The new lender then adds on the amount you want to borrow for the renovation work to what you still owe on the property, to calculate a new weekly repayment amount, which you will have to pay based on that figure.

Should you want to do this, it is worth contacting a refinance mortgage broker like Get a Better Rate as they can potentially save you a lot of money in the long run.

However, before switching, make sure there are no break fees on your existing fixed home loan. Also, be aware that you will be increasing your mortgage and sometimes the term length of your loan (which might be as much as 30 years).

6. Get a renovation loan

Understandably, you might not want to put your mortgage at risk. Therefore, a good alternative is to get a renovation loan.

As its name suggests, this type of loan is specifically designed for the purpose of refinancing renovations. As it is tailored around the renovation process, you might find it an attraction option.

Similar to other loans they can be both unsecured and secured with either variable or fixed interest rates. Not all lenders off them but for those that do, the repayment periods are shorter for these types of loans than for mortgages, so you can typically pay them off much quicker.

7. Procure a building/construction loan

If you are planning a significant renovation project, it might be worth procuring a building and construction loan.

This type of loan allows you to access funds at various stages of your project, as opposed to a lump sum first up. However, it does mean that your debt gets larger the further into the work you get. That said, if you experience issues that delay the project, you do have the advantage of only repaying what you have borrowed up to that point.

Should you want to apply for a building and construction loan be aware that the process can be quite lengthy and subject to meeting valuation requirements.

8. Apply for a personal loan

You might find it easier to apply for a personal loan, especially if the work you plan to do is not that major.

Personal loans can be taken out for various expenses, such as paying for a holiday, buying a new car or renovating your home. The application process for personal loans tends to be quite easy and straightforward and usually don’t involve you filling out lots of paperwork.

However, there may be a restriction on the amount you can borrow, and the repayment rate is generally between one to seven years.

9. Apply for a government grant

Depending on where you live, the local or federal government might offer grants that can help you fund your renovation project, particularly if you plan on implementing environmentally friendly measures like installing solar panels, insulation or water tanks.

Queensland, for example, is one state in Australia that offers a renovating a home and home builder grant which can provide you with much needed capital. So, it is worth establishing what might be available where you live.

10. Use credit cards

While you can also use credit cards to pay for your renovations this is not a recommended practice. The interest rate on credit cards can be phenomenally high, so if you are not able to pay it off quickly your renovation project can end up costing you a lot more in the long run.

Most popular renovations to do

Now you know how you can access finances for the project, it is worth taking a moment to reflect on what renos you can do. This will determine how much money you need to fund the work. Here then are some of the most popular ways to enhance your home.

  • Bathroom Renovation
  • Kitchen remodelling
  • Roof replacement
  • Landscaping
  • Patio/deck
  • Underfloor heating
  • Installing better windows
  • Creating extra room or combining two rooms into one
  • Upgrade lighting
  • Replacing garage door

Final thoughts

Renovation projects are a great way to add value to your home and elevate its style, comfort and functionality.

Whether you use one of the methods outlined above to finance your renovation project or a mix of a few, those 10 strategies can help you turn your current property into your dream home.

The key thing to remember is to never take on more debt than you can manage. If you can do this, without making the common mistakes many other people do, then you’ll soon have a place you will be proud to call your own.

And, most importantly, still be able to afford it!

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