How to use a construction loan for renovations

If you’re considering renovating your home, you might be wondering if you will be able to apply for a loan to help you manage the costs. For larger renovations, a construction loan could be a helpful option. As the funds for construction loans are released in stages, you may find them perfect for managing the stages of your renovation.

In the case of most construction loans, you might only pay interest on the amount that is drawn down, instead of interest for the entire loan. Depending on the size of your renovation plans, you might find that a construction loan is a perfect loan to expand and improve your house.

Read on below to find out more about how to use a construction loan for renovations.

How to use a construction loan for renovations

A construction loan is a type of loan designed for people who are either building a home or doing major renovations. Construction loans have a different loan structure to home loans, which are designed to help buyers purchase a home. Unlike a home loan, which is usually based on the market value of the home in comparison to other recent sales in the area, construction loans are based on what the projected value of the home will be once work is completed.

A construction loan usually has a progressive drawdown. This means that you will receive instalments of the loan amount at various stages of construction, rather than receiving it all as one big lump sum at the beginning of construction. One of the benefits of having a progressive drawdown loan is that you may only be paying interest on the amount that is drawn down, instead of on the whole loan amount at once.

In most cases, construction loans are ideal for larger home renovations. You might find a construction loan particularly helpful if you are changing the structure of your home, knocking down walls, or rebuilding and adding rooms.

To start construction, your lender may need you to have a detailed renovation contract, construction quotes, and a building plan ready to go before they release the first stage of funds to you. The total value of your loan may depend on your lender and the size of your project.

The advantages of construction loans

There are many benefits to taking out a construction loan for your renovation. If your project is a large one, a construction loan’s drawdown stages can provide stability and a form of protection from overspending. Some other benefits to construction loans may include:

Financial protection – By making progress payments instead of paying an upfront lump sum, you are covering yourself against financial loss. You are also able to make sure that the construction itself is being completed properly before you provide your builder with any more money to move forward.

Reduced interest – If you’re only making partial payments then you’ll only incur interest on the amount that you’ve drawn down. You won’t pay interest on the money left in the bank.

Pay as you go – A construction loan is different to a regular loan in that it is not paid out in one transaction. Instead, you are given funds from your lender as the invoices from your builder come in.

Flexible terms – A construction loans from a lender can be tailored quickly and effectively to your constructions needs. It is possible that your lender may be able to work with you to make sure that draw schedules and interest payments are set in a way that benefits both parties.

The freedom to choose – Perhaps the biggest advantage of a construction loan is being able to renovate your home how you choose. Most homes on the market are pre-built, and therefore, you just choose one that might be close to what you want. With a construction loan, you get to choose your contractor and architect and customise your plans to fit with what you want and need.

How to get approved for a construction loan

In addition to the usual forms of identification needed to apply for a loan, you may need a few extra documents before you begin the application process with your lender.

A building contract – A building contract is potentially the most important document of all. It should outline all of your planned renovations and construction in detail. It should also include a detailed timeline of the construction work and the costs of the overall build.

A building plan – A building plan is the blueprint of your home. It should include both the layout and proposed dimensions of your house when construction is finished.

Building quotes – Quotes from your builder may also be necessary for your application. Your lender will need the estimated costs of the renovations, and the value they will add to your home.

Proof of identity and income – Your lender will usually also need documents relating to your income and expenses, and any assets and investments that are in your name. These are fairly standard when applying for any type of loan. Your lender will need to make sure that you have stable employment history and income stability in order to ensure that you have the ability to repay your loan without any problems.

Where does Tiger Finance come in?

If you’re looking for the best deal on a construction loan, look no further. We have helped countless Australians with both good and bad credit ratings to be funded for their dream renovation. To us, you are more than your credit rating.

With Tiger Finance, we can help to get you a loan in four easy steps. You will have a free consultation with one of our specialists, and we will tailor-make you a loan. We will negotiate with lenders on your behalf before you are approved.

How we can help

Our finance specialists can help you find the right construction loan for your project. Don’t spend weeks waiting for your construction funding. Tiger Finance can have you approved on the same day that you apply. Call us today for your free initial consultation with one of our loan specialists to get your construction loan started.