home renovation financeBy far the most common problem with home renovation is that it goes over budget – this is not an issue if you have made provision for this and all of your finances are in order.  But if you have decided to renovate on the sly, maybe using some savings, or redraw or credit cards and if you run out of money before the work is finished, the outcome can be very difficult, if not catastrophic.

Why? well start by reading your mortgage contract, you will find that you are not allowed to make any significant changes to the property without advising the mortgagee ( the lender ).  After all the house is probably the most important part of what secures your loan and the lender does not want you attacking their security with a sledge hammer unless they are fully informed.  So if you  knock big holes in the wall and then go to your lender and say “I need some more money please” – the first thing they will probably do is to point out that your are now technically in breach of contract.  They could do any number of things depending on how they feel about you at the time, including cancelling your mortgage and giving 21 days to repay in full – failure to do so resulting in all sorts of dreadful outcomes.

If you are lucky and have a good relationship and haven’t done anything too silly, your lender will probably arrange a building inspector then insist that you employ a licensed builder to complete the work.  If the work is really superficial such as painting, they may simply accept a couple of written quotes – but they will insist that the work is performed by a qualified person.  If your mortgage contract allows they may impose a penalty interest rate until you have the home back in an acceptable state.

And if you think that you can just tell your bank to go and jump and apply elsewhere – be prepared to be disappointed.  The majority of lenders will not touch a house that is not fully suitable for occupancy and that will be outlined by the valuer.  I know of only one lender who will consider a loan in this situation but keep in mind that if your credit cards are maxed out, you are not going to be viewed as the most responsible applicant.

So think twice or just do it properly, advise your lender and comply with their requirements.  For a small renovation they will probably request a few written quotes and a detailed list of what work is going to done and by whom.  For more significant renovations ie: any work that results in a change of the roof line eg: additional rooms then you will need to apply for a renovation construction loan.  Where you will use a licensed builder and he will be paid directly by the lender at specific progress points on the work.

If you have experience in the industry eg: a carpenter etc – then some lenders will consider a loan for owner builder.  However usually they will require you to perform up to a specific stage of the work using your own funds eg: lay the slab and then they will fund that amount, which then allows you to move onto the next stage.   If you don’t have specific industry experience or construction project management experience – your options are very limited and you should be considering a residential construction home loan.