Taking out a loan to fund your granny flat investment
Given that the average granny flat costs about $120,000 there’s a good chance you’ll need a loan to help you finance the cost of your granny flat. Depending on your individual circumstances, there are generally two common ways to finance a new granny flat.
Borrow against equity
Most of the time, homeowners are able to use the equity available in their existing property to fund the construction of a granny flat. This can be done as an additional loan added to your current home loan or investment loan, or an equity facility may be provided, allowing you to pay the builder at each stage of the construction, which will also help minimise interest charges during the construction stage.
Obtain a construction loan
If you don’t have enough equity in your property to finance the construction of your granny flat, you also have the option of obtaining a construction loan. Construction loans are generally approved based on the value of your existing property and the value of the granny flat. You’ll also need to provide the lender with a signed contract between you and the builder, in addition to the council-approved plans and specifications
Other requirements to secure finance
As with any loan, there are some other requirements your lender may require in order to approve the finance for either of the finance options listed above. The first, and most important, is a bank valuation. Check with your lender, but a valuation report obtained from RP Data may be sufficient evidence of your property’s value. You’ll also have to show that you have a solid credit history, above average credit score, sufficient income, stable employment, etc.
Depending on the amount you’re trying to borrow, you may also be asked to provide evidence of the purpose of the loan. This is especially important if you’re a low-doc borrower. If you’re accessing the equity in your property and you borrow more than 80 percent of its value, you will be required to pay lenders mortgage insurance (LMI), which is costly.
Just as it is with buying a new home, it’s a good idea to speak with your bank or mortgage broker. If you would like more property news, insights and analysis, continue reading our blog. Alternatively, subscribe below to have our latest blogs delivered straight to your inbox.
As seen in..
Our educational blogs are designed to help you understand each of the steps involved in selling your property so whether you choose to work with a real estate agent or do it yourself you'll understand the work involved and be more efficient and aware of what you need to do. Our articles have been seen in these major online news and information portals..
Get genuine and objective information about what's important when selling your property - whether through an agent or by yourself.
Built by 123ezy