Loan options for construction and renovation projects!

When planning a construction or renovation project, securing the right loan is crucial to making your dream a reality without financial headaches. Whether you’re building your ideal home, adding a second storey, or upgrading your kitchen – choosing the right loan type can save you time, money, and stress.

In this guide, we’ll explore loan options for construction and renovation projects, key factors to consider, and practical tips to help you secure the best deal.

1. Construction loans

A construction loan is perfect for building a new home or undertaking major renovations. The unique feature of this loan is that funds are released in stages (known as progress payments) as the work is completed. You only pay interest on the amount drawn down, not the total loan, which can save on interest costs during construction.

How do you know if your renovation qualifies for a construction loan? Ask yourself:

• Are structural changes involved (e.g., adding rooms, modifying foundations)?
• Will the renovation cost more than $100,000 or require multiple stages?
• Do you have detailed building plans, a fixed-price contract, and council approval?

If the answer is “yes” to these, a construction loan might be the right fit.

2. Renovation loans

For smaller-scale projects – like updating a bathroom, a new kitchen or landscaping – a renovation loan may be more appropriate. These loans are usually structured as:

• Home loan top-ups: increase your existing mortgage to fund your renovation.
• Personal loans: an unsecured option for minor renovations but with higher interest rates.
• Equity loans/Line of credit: tap into the equity in your property to draw funds as needed. These loans often allow you to borrow more, repay over a longer period, and only pay interest on what you use.

3. Owner-builder loans

Planning to manage the construction yourself? Owner-builder loans are available but come with stricter lending criteria as they are considered higher risk. Lenders are often concerned about the lack of a licensed builder and the potential for cost overruns. However, with the right guidance, it’s possible to secure an owner-builder loan.

How a Nectar mortgage broker can help

At Nectar, we take the stress out of applying for a construction or renovation loan. We have access to over 50 lenders, helping you get the best possible deal and a loan tailored to your needs. Here’s how we can assist even further:

• Explore loan options: we’ll help you choose the right loan for your project, whether you’re building, renovating, or managing the work yourself.
• Solid applications: a Nectar broker can help you prepare a strong application, which is especially valuable for owner-builder loans where you need to demonstrate your ability to manage the project successfully.
• Government grants: we’ll guide you through grants like the First Home Owner Grant (FHOG) or energy-efficiency rebates.
• Boost your credit: we can educate you on the importance of a good credit score and how to keep it healthy for better rates.
• Negotiate terms: we’ll work with lenders to secure lower interest rates or waived fees – especially if you’re a long-term customer.

Things to consider before applying for a loan

1. Define your budget
Start by determining the total cost of your project, including a 10–15% buffer for unexpected expenses

2. Prepare paperwork
Lenders may require the following documents:

• Building plans and council approvals.
• A fixed-price contract or cost estimate from a licensed builder.
• Proof of income and savings.

3. Leverage equity or build a deposit
Most construction loans require a deposit of at least 20%. If you have equity in an existing property, you may be able to use it to reduce the upfront deposit. A Nectar broker can help you assess your equity and determine if it can be used as a deposit.

4. Work with trusted professionals
Choose licensed builders and tradespeople to ensure your project runs smoothly and satisfies lender requirements.

Securing the right loan is the foundation of a successful construction or renovation project. With support from a Nectar mortgage broker, you’ll find a loan that fits your budget, timeline, and goals – without the stress of navigating the process alone.

Ready to turn your renovation plans into reality? Contact us today, and let’s explore your options together!