6 Essential Questions to Ask Before Getting a Home Improvement Loan

Australians have had a long love affair with renovations, but the demand for home fix-ups has launched into an all-time high since the pandemic. 

Driven by low-interest rates, HomeBuilder funding, and house prices rapidly on the rise, the country is buzzing with the sound of drills and hammers. If you’re a homeowner, chances are, you’ve found yourself needing a refresh of your space. Maybe it’s a functional home office, a larger backyard space or those upgrades desperate for attention. 

But with the cost of renovating going up and builders in high demand, how do you decide the best way to finance and plan your home improvement? 

More homeowners are digging into savings that would have otherwise been spent on travel, restaurants, and entertainment. Some are refinancing their home loans or applying for a home improvement loan; while others are using a combination of savings and a loan. 

Before you put shovel to dirt, ask these questions first. 

1. What are my Renovation Costs?

Planning how much you need to spend will help with the decision process. 

Start by creating a realistic budget. Use finance management tools to make it as accurate as possible and factor in any costs associated with your loan. Ideally, your budget should be what you can realistically afford to spend with a 10-20% buffer on top. While you work out your budget, gain an understanding of your renovation costs so it’s detailed and precise. 

Work out your renovation costs by:

• Deciding on the scope of your renovation – cosmetic vs structural vs outdoor areas
• Using multiple resources and online calculators to determine estimates
• Getting at least three quotes from licensed builders and tradespeople 
• Finding budget guides with current standard prices
• Being honest with yourself about what you can spend 
• Knowing your property well – older homes can have higher renovation costs 
• Asking for expert advice
• Gathering your supplies together and the costs of these 
• Having professionals check your plans 

2. How Much Can I Borrow?

How much you can borrow depends on your income, credit rating, age, renovation type, and current financial situation. Lenders will also set limits. As a guide, eligible homeowners can borrow from $2,000 to $75,000 for a typical home renovation loan. 

You may need to be on a minimum yearly income too, for example at least $25,000 annually. Larger incomes don’t necessarily mean a higher loan either. The best way to check whether you’re eligible and for how much is by researching and comparing lenders. Make sure you know where your finances are at, including your credit rating and the maximum monthly repayments you can afford. 

3. Will the Loan be Paid in Stages? 

If it’s a minor renovation, under $50,000, banks and lenders usually pay upfront. 

Other loan types such as construction finance pay in stages or upon completion. For builders wanting a deposit upfront, this can be frustrating for homeowners who have to fork out the money first. Check with your preferred lender about their terms and conditions and when and how the loan is paid. 

4. What are the Fees Associated? 

Ask and budget for any unexpected fees. These charges are part of borrowing money to cover the costs of reviewing and processing your application. 

How much extra you pay will depend on the lender’s fees and the amount you intend to borrow. Fees also differ between finance and lender options. 

Some costs to consider are:

• Early repayment fees
• Early exit
• Establishment fee
• Servicing fee
• Withdrawal fees
• Insurance

5. Is a Secured or Non-Secured Loan Better?

There are two types of home improvement loans. 

Unsecured loans have no security to an asset, like a house or a car. It allows you the freedom to borrow money for your renovations without collateral but comes with a slighter higher interest rate than a secured loan. If a loan is unsecured, your property and other assets aren’t at risk if you default on any payments. 

Secured loans come with protection for the lender. You agree to give them collateral (most likely your home), which protects their investment to you.  If you’re unable to meet the agreement and don’t pay your loan on time, the lender can use the collateral to recoup the money to pay off your debt. These loans are usually easier to get because they have less risk to the lender. 

Weigh up:

• Fixed vs variable interest rates
• How long the loan repayment terms are for
• Borrowing limits
• Your cash flow

6. What’s the Return on Investment? 

Are your home improvement plans worth it? There’s no point in investing funds into renovations that don’t add value to your home. 

Your ROI will depend on where you live and what renovations you undertake. There are key areas, like curb appeal and kitchen upgrades, where you can expect to get your money back. If you’re considering selling in the near future, choose home improvements designed to increase your property’s value such as bathrooms and kitchens.  

Author Bio
This article is written by Jayde Walker – a creative copywriter in Perth who writes in the home
improvement industry. Catch her on LinkedIn.