Banks break home renovations into two main categories when looking at financing a project – structural renovations or cosmetic renovations. 

Cosmetic renovations encompass things such as – painting, carpets, landscaping and even a bathroom or kitchen renovation. 

Structural renovations generally involve changing the property’s floor plan or roofline. This could mean moving structural walls, adding on rooms or a second storey, the things that would normally require council approval.

Lenders view these in quite different ways. It is possible to borrow a certain amount of cash against your home to complete cosmetic renovations and not have to be too specific about it or provide any quotes. 

On the other hand, structural renovations are altering the bank’s security and they have different requirements when borrowing these funds.  

When applying for finance for Structural renovation you will need to provide the lender with a Fixed Price Building Contract from a licensed builder. This contract will detail all the works being done and the exact costs. The lender will have a valuation conducted on the property to determine the value once the renovations are completed. This will ascertain whether there is enough equity in the property to increase the mortgage. This ensures the work will be completed to a standard and there are enough funds to bring the home back to an occupiable state. 

When the lender approves the loan, they will control the funds for construction in a way of draw downs to the builder. The builder will provide an invoice (as per the schedule in the contract) at each stage and the bank will pay these once you agree the work has been carried out to that point.  This gives the bank and you protection that the builder isn’t getting all the money upfront and wont complete the work or if they go into receivership you have only paid for work completed.  The bank will also at certain stages of the construction conduct additional valuations to ensure that the works are being completed as stated in the contract.