Application to conditional approval
Great – you’ve decided to renovate your property. Maybe you’re adding a couple of rooms to your existing property or even knocking it down and starting again with your whole new design. It’s an exciting time, but first you need to jump through a few hoops with your bank to finance the renovations. As this is quite a large topic, we’re going to look at it over the course of a few articles – this one will cover off the process up until conditional approval and the next ones will then look at what happens after that up until you finish your construction project.
For the type of loan, most construction loans are variable rate loans with interest only repayments. A lot of the features that you may be used to on your normal loan may not be available during the construction period such as redraw or similar features.
This is, ofcourse, a rough guide – with so many lenders in the market, there are always a couple that does things a bit differently.
Process
Typically for the initial loan submission, the lender will require a few different documents in order to value your property and the proposed renovations on an “as if complete” basis. All this means is that the bank takes the land value of the property and adds your construction costs to this. So if your loan value is $500,000 and you spend $500,000 on renovations, the property’s “as if complete” valuation would be expected to be $1,000,000. This is even if comparable completed properties are selling for a bit more as the banks and valuation firms are quite conservative in this regard. A typical exception to the “as if complete” valuation is if the valuer feels you are overcapitalising on your property in which case it may come in a bit less. This is not necessarily a deal breaker provided you have enough equity in your property.
The documents asked for by the bank prior to issuing a conditional approval may include:
- A formal tender document from your builder
- Plans and specifications (non-council approved at this stage is ok)
- Quotes for any ‘Out of Contract’ items must be provided to the Bank/Valuer (for example, if you were doing the landscaping through another company apart from the builder)
- Any traditional loan application documentation such as income verification documents, bank statements etc.
Once the bank has received these documents, they’ll arrange the valuation and assuming that is acceptable they will then issue the conditional approval. Once you’ve got your conditional approval, we then need to proceed through to formal approval of your loan. We’ll have a look at that in the next article – stay tuned!
Looking for a good Mortgage Broker in Sydney?
All these changes can affect your goals to be a property owner. It is always best to talk to a good mortgage broker to make sure you can still invest in the property and achieve your short and long term financial objectives. Our Tradebusters Connect Top 3 Pick Local Directory can connect you with an experienced local mortgage broker near you today.
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