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Case Study – Construction loan for a renovation

Our clients, who recently went through the process of a big renovation requiring a construction loan, share their story of how it worked for them.

 

How did you hear about our mortgage broking services?
Our builder is a client of Louise’s and recommended we contact her about our loan.
Did you do a completely new build or a big renovation?

We renovated an old double-fronted Victorian weatherboard and added an open plan extension at the rear.

Did you live in the house while renovating or rent elsewhere?
We lived there for as long as we could – about 3 months and then we had to move out. We were renting for about 8 months.
Roughly how long did the whole process take?
About 2 years total (but we’re also technically not finished – we still have the front facade, roof, en-suite, and WIR still to do)
  • From design to drawings & building approval? This took longer than we expected. We ‘found’ our building designer, and this process presented quite a few issues so to building approval it was about 14 months. We would use an architect next time or at least choose based on a recommendation.
  • From loan approval to building commencing? Possibly 3-4 months as we needed to finalise all certificates etc.
  • From start to finish of building? This was 9 months. Probably a smoother process than the design phase.
Have you done this before – a new build or renovation?  Did you understand the process?  Was it more complex than you anticipated?
No, we haven’t done it before. We didn’t understand some parts of the process. You really need to rely a lot on your designer and builder to guide you here as there aren’t (that we were aware of) other dedicated resources available to help with this. It was more than we anticipated prior to the commencement of works. This is where we found it was most complex and difficult to navigate. The build itself was good – stressful at times, time-consuming and there is a huge amount of decisions that need to be made but we really enjoyed this part.
How did the process work in terms of work done, builder invoicing and the builder being paid?
We sent the invoices to you, our mortgage broker, and you helped us by liaising with the bank to arrange the payments.
How many progress payments were made from start to finish?
I think there were five in total.
I believe you paid Interest only on the construction loan, with the amount changing with each draw down?
Yes, we paid interest-only during construction and then it automatically converted to P&I after the final draw down, which certainly made quite a big repayment increase.  The rate increased marginally upon completion but, without us asking, you (our mortgage broker) requested a further discount from the lender so we are actually now on a lower rate that than the rate we were on during construction.
Value of the property should cover the amount of the loan drawn down at any one time.  Was this ever something you didn’t agree with?
We had an issue at one point in the build where we needed to take the walls down in the front of the house to prepare for new plaster (which we funded) and we needed the approval to proceed to the next stage for the rear (which is what the loan was scoped for). But because the total value of the property was considered less due to no walls at the front, we had some delays getting this through. I don’t agree with this – at any one point in time multiple works might be occurring and obviously, for a valuer, this will affect their view without foresight. I imagine this would cause a great deal of issues for many others.

Broker note: I understand how clients may wish to pay for items themselves in anticipation of hastening the process, but it may actually work against you as it can upset the bank’s procedures.  Please seek advice from us before funding items yourself during the construction phase so we can work on the best outcome.

Overall, how was the experience?
The most rewarding thing I’ve been a part of – the sense of accomplishment is much greater, the larger and more complex the task.
Would you do it again?
In a heartbeat. And we’d be better at it – now we know.
If you would or anyone you know would like help with a construction loan, please book a time to have a chat with me via calendly.com/louise

 

With thanks,