Renovating or Upgrading to a new home

Whether you are renovating, or upgrading, the equity you have built up in your existing home can be key to achieving your dreams.

What is Equity?

Equity is the difference between what your home is worth and how much you owe on it.

For example, if your home is worth $350,000 and you owe $200,000, you have $150,000 in equity.

As you continue to pay off your loan, the amount you owe to the lender decreases and the amount of equity you have increases.

Want to see how much you can borrow?

What can I do with my Equity?

The great thing about having equity in your home is that you can use the money for just about anything. You may like to renovate your home, use the extra cash to upgrade to a better home, invest in property or shares.

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Renovating - what type of loan is best?

The benefit of using a builder to renovate your home is that lenders will generally lend you more money than if you are an owner builder. Using a licensed builder means that you can obtain a fixed price contract for the agreed work and your lender will pay the builder when certain stages of the build have been meet, e.g when your roof is water tight if putting on a second storey. These stages are known as "Progress Payments". At the end of your build process the lender would have paid many (often up to 6 or more) Progress Payments to the builder thus ensuring for you and them that the homes renovation has been done to plan and price.

Using a licensed builder and a fixed price contract does mean that changing your mind on what you would like can be costly - also the lender may need to approve any changes to the pricing outside of what has been agreed to in the contract.

If you decide to become an Owner Builder, e.g take responsibility for the building process yourself and manage the process from the first stage to the last stage lenders will generally offer you less in terms of a loan amount and will want information from you about what the renovation is specifically doing for the homes value.

Being an Owner Builder can sometimes save you money on a build, this is normally the case when you know the building market and have the necessary knowledge and skills to negotiate through the variety of tradespeople that may come on site to help you. By negotiating directly with each tradesperson (known as "Contractors") you cut out the middle man effectively saving money.

Remember though - this process can be very time consuming and you will save money if you know the market, if you are not aware of the building process then often the mistakes you may make from lack of knowledge are more costly to you than the money you saved from not hiring a builder.

The benefit of being an Owner Builder is that the process is lead and managed by yourself, therefore you are in control and have the ability to change items within the renovating process should you wish to.

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Buying a new home?

The great thing about buying a new home (when it's not the first time you have done it) is that you can walk into a house with your eyes wide open. You are likely to know what about the existing home you are in is no longer suitable and therefore be more detailed in your analysis of the next property.

Does your existing home have enough power points? Is the air-conditioning only really operational in one room? Do you want a garage rather than a carport so you can store items other than vehicles away? All these areas and many more can be assessed when looking at your next home. Because your needs are likely to be different now than when you bought your first home, take some time to think about what you would like from your next home - what items are mandatory (can't live without, therefore will not buy unless I can have) and what items are nice to have's. No one property is going to tick every single box so go for what fits the most and feels right.

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Considering 'Off The Plan' for your next purchase?

When buying off the plan, have the terms and conditions of the contract checked by your solicitor or conveyancer to ensure what is stated on the plan is what you will be buying.

The contract should be examined thoroughly to see:

1. who holds the deposit
2. what happens if property is not completed
3. how can you get your money back if there are problems

Be careful about:

1. sales taking place before council approval
2. standard of workmanship promised
3. building changes before work has commenced
4. the time between signing the contract and completion of the work could be as long as 2 to 3 years

As buying 'Off The Plan' can take some time you may wish to use a Bond to cover your Deposit. Using a Bond means that you pay a fee to a company who guarantees that you will pay the full 100% of the properties sale price at the time of settlement.

Benefits of using a Deposit Bond include:

• You don't need the deposit in cash at the time of signing the purchase contract
• You can keep your own money in a high interest account or other investment vehicle for the duration of the build. As mentioned before this could be several years and therefore your savings could increase greatly over this time.

Your mortgage broker can assist in arranging a deposit bond for you.

You may like to use a Deposit Bond rather than your own funds to secure a 'Off The Plan' purchase.

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Why use a finance consultant/mortgage broker

Because finance consultants have an understanding of the loan process and the criteria used by Lenders in evaluating borrowers they are able to make sure your loan application is completed quickly, correctly and that you get a loan which is right for you.

• They will work with you to identify your needs
• They have access to an array of loan products with many different lenders
• They will help you to understand the various deals that are on offer, explaining all the features and details
• They will lodge your application for you
• They will deal with the Lender for you
• They will arrange all paperwork necessary to secure the mortgage
• They will be there after your loan has settled and work with you to ensure your loan continues to offer you the outcome you need.

Choosing a finance specialist

Make sure your finance specialist is:

• A member of the Mortgage and Finance Association of Australia (MFAA) www.mfaa.com.au
• Part of a reputable aggregator (the grouping of a number of mortgage brokers into one, for the purpose of doing business)
• Happy to disclose fees and commissions
• Covered by Professional Indemnity insurance
• Has access to a broad panel of financial institutions
• Takes the time to understand your needs and assess your options
• Is part of an External Dispute Resolution Scheme such as Credit Ombudsmen Service Limited (COSL) www.cosl.com.au. COSL is an independent dispute resolution service for the credit industry. They assist borrowers should there be a dispute that is not resolved between the parties.

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