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Accessing the equity in your property or taking out a construction loan are the two most common ways to finance a granny flat but they’re not the only options available to you. Depending on your circumstances, you may want to pursue different financing for your granny flat, so we’ve rounded up some alternatives to the traditional granny flat loan options.
Many homeowners consider this a last resort, because they believe they already have to best deal available to them. It’s important to remember that you’re looking for the loan best suited to your current situation, rather than your situation at the time you were purchasing your home. When looking to refinance your loan, look for a lender and product that allows you to increase the original loan amount to an amount that will cover the cost of constructing your granny flat.
Unsecured personal loan
A personal loan can be a good option for small renovation projects where the cost is fixed in advance, such as installing a swimming pool, updating a kitchen, or constructing a granny flat. Most of the time, you can borrow the total cost of your granny flat on an unsecured personal loan, with fixed regular repayments. Because, unlike a swimming pool or kitchen, a granny flat will earn an income, you may also find that you’re able to pay the balance off earlier, without adding to your mortgage. Again, this is where it’s good to use a builder who can provide you with a turnkey cost for constructing your granny flat, which minimises budget blowouts.
Commercial property loan
If you are self-employed, you may be able to take out a commercial property loan to finance your granny flat. There are things to consider here, however, as commercial loans aren’t covered by the National Consumer Credit Protection Act (NCCP), meaning borrowers don’t have the same protections as home buyers.
A commercial loan requires some type of security, the most common being office space, factories, warehouses, retail space, or residential property. Keep in mind that, if you put a commercial property up as security for the loan to fund your granny flat, it may end up being regulated under the NCCP Act (because it’s a residential investment), and this would mean that some commercial lenders would not be able to approve your application.
When it comes to securing finance, it sometimes pays to think outside the box (in this case, the two typical funding options for granny flats). Although you may well go the traditional route in the end, be sure to speak with your bank or mortgage broker to discuss all of your options.
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