Tag: CVG Finance

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Before & Afters RENO ADDICT

Selling before you buy… patience is a virtue!

Before: front

When clients came to talk to us recently about organising finance for the purchase of their next family home, it was time to action the “slow and steady wins the race” approach.

Leah and Brett bought their first home in a sleepy lakeside suburb of Lake Macquarie, with the plan of giving it a bit of a facelift while they lived in the granny flat out the back.

Before: front
Before: front
After: front
After: front

“We built the granny flat so we could live there while we gave the house a cosmetic makeover,” says Leah. ‘But once we started to pull things out we realised it was more of a project than we realised – and my husband is a builder!’

So what began as a freshen-up quickly escalated into a complete renovation, with the home stripped back to its foundations before any new work could begin. What was to be a three-month job for Brett blew out by six months and as for costs…

But nine years down the track it’s (almost) a fond memory for the couple. “We lived in the granny flat for three years,’ Leah explains. “It was great!”

With two small children and a yearning for some more space, the family is moving on and has put their home on the market. And, despite already finding their next dream project, after chatting with us they have chosen to sit tight and wait until they sell their home before making an offer on the next.

“It’s hard to wait,” Leah says. “We’ve found a place that’s perfect for us. But once we sell this place, we’ll know where we stand, we’ll have our finance in place and we can make an offer from a position of strength. I just hope it all works out!”

Before: front
Before: back yard
After: back yard
After: back yard

Even though Brett and Leah are probably in a position in which they could organise a bridging loan, after working through their options, they decided to take our advice and wait it out and try to sell their own home first before doing anything else.

This way, they will know just how much money they have to offer and it also means they won’t be tempted to take a lower price on their own home just to relieve the financial pressure of a bridging loan. The worst case scenario will be having to find somewhere to live if they miss out on the home they want to buy.

While there is a good cased for bridging finance for a lot of people, it just wasn’t the approach the couple wanted to take. Bridging finance is no longer as expensive as it used to be and if you have the means to service the loan, most lenders should negotiate with you on a rate that is usually pretty well in line with the current home loan offering.

However, it can be expensive to set up and you will have to service two home loans until you sell your existing home; which may put you under financial pressure and tempt you to sell your home for less than it is actually worth just to ease the stress.

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas. 

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RENO ADDICT

To fix or not to fix (your loan)

Credit

If you’re planning a renovation, just finished one, or you’re right in the thick of one, you may well be re-evaluating your mortgage options. And if you are, you are also probably asking yourself the question: “Should I fix my loan rate?”

Credit
Credit: Three Birds Renovations

There are always questions around fixed and variable rates, because people really want to know what they should do!

Some people take the crystal ball perspective – they try and predict what’s going to happen in the future, but to be honest, it’s a bit like being at the casino table and trying to figure out whether the ball is going to drop on a red or black number. Banks employ rooms full of economists who try to figure this out every day and they still get it wrong!

After: backyard
Credit: Three Birds Renovations

The most accurate (and there’s still plenty of room for error) approach is probably the rear vision mirror view, which is to look backwards at what has happened with rates historically.

At the moment, interest rates are at an almost-60-year interest rate low, which is great for buyers right now. But if you speak to people who were buying houses in the ’80s, they’ll be able to talk to you about the pain of borrowing on rates of 18%. I’m 35 and in my ten-year borrowing life I’ve seen a big fluctuation with rates. One of my first loans sat in the 8 or 9% range and now we are seeing them halve to sit in the 4% range.

With all of that in mind, what looking in the rear vision mirror tells us is that right now interest rates are incredibly low and if it suits you, it is probably a great time to lock in a fixed low rate.

Credit: The Block Shay and Dean's kitchen
Credit: The Block Shay and Dean’s kitchen

The third approach to take is to have a good look at your plans for the next few years and see what is on the radar that may dictate or limit the choices you make about whether or not to fix your rates.

Statistics show that every three years people adjust their home loan. And that’s usually because they are doing something in their life that requires them to make changes to their loan – they are renovating, getting married, divorced, having a baby, moving house etc.

For some people, the certainty of knowing what they will be paying out for their loan every month and that their rates won’t change over the term of their loan suits them perfectly. But for others – especially when you bear in mind the three-year average loan adjustment – locking into a loan may not be the way to go.

You might be planning on flipping the house and buying again, you may want to renovate, you may be planning on having another baby. For whatever reason, locking into a fixed loan might not suit your life at the moment.

Credit: The Block Caro and Kingi's kitchen
Credit: The Block Caro and Kingi’s kitchen

If you do settle on a fixed rate and then decide to change things, the bank will charge you for breaking the contract of your loan. This is called a fixed-rate break cost and it is set at a rate that covers what the bank will lose out on by you breaking the contract.

Something else to keep in mind when thinking about a fixed rate is while you do have the certainty of knowing what you’ll be paying on your mortgage for the term of your loan, a fixed rate means that you will not have the flexibility of a variable loan.

And that means you cannot pay extra off the loan. You can only make the scheduled payments over the life of the loan (although some do give you a capped additional amount, usually around $10,000).

So if you get a bonus at work, or you come in to an inheritance etc, you will be penalised with a fixed-rate break cost if you pay a lump sum into your loan.

BecJudd02
Credit: Rebecca Judd

But the good news is, you can have your cake and eat it too!

You can do this by fixing a proportion of your loan and leaving the balance on a variable rate. That way, whichever way rates move, one half of your loan is always winning. If you are going to do this, have a really good look at what you have planned in the next few years to ascertain the best proportion of fixed to variable.

The final thing to consider once you have decided to fix all of your loan – or just a proportion – is how long you want to fix it for. This is the million-dollar question. Different terms will have different costs – sometimes the longer the term, the cheaper the rate, while at other times, the shorter the term, the cheaper the rate.

Your plans will be a good guide to the length of your term as well. If you plan on flipping your property and buying again, you don’t want to be locked in to a loan and incur a break cost when you sell.

On the other hand, if you plan on renovating and holding on to the property as an investment or as an owner-occupier for a few years, now is probably a great time to lock down a loan at historic low rates, keep your repayments low and maybe even use some of the extra cash you are saving to buy yourself a second property.

— Paul is the director of CVG Finance, a leading brokerage offering financial services across all areas. 

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Before & Afters Design DIY House Tours Outdoor & Exteriors RENO ADDICT

Real reno: the perfect property flip!

Before: kitchen

It’s always a thrill to see the For Sale sign go up on a home you’ve just finished renovating – especially when you’ve already found your next project. But what do you do when the stars don’t align and you want to buy before you’ve sold?

Before: kitchen
Before: kitchen
After: kitchen
After: kitchen

This is the situation our clients Kirra and Blake found themselves in on the very day their finished renovation went on the market. The couple, who live in the beautiful hinterland in Bogangar in Northern NSW, recently completed a makeover on a home they bought just over four years ago.

Blake, who is a builder, completed the work – an extensive renovation that completely overhauled the original ‘70s house and breathed fresh life into what is now a light and airy family home. The four-bedroom home backs on to nine acres of stunning nature reserve and is a 10-minute walk to Cabarita Beach.

Before: living room
Before: living room
After: living room
After: living room

“Even though we knew we were going to sell the house when it was finished,” says Kirra. “We renovated it exactly the way we wanted it to be for our lifestyle.” The result is bright and breezy – with stylish, simple neutrals such as new bamboo flooring and a fresh, new all-white kitchen – the perfect style for a home in this leafy green setting. Boasting a large wrap-around timber veranda, the finished product has four bedrooms – the main with ensuite, two bathrooms, double garage, oodles of storage (inside and out), a chicken coop, fruit trees, a vege garden … the works!

Before: exterior
Before: exterior
After: exterior
After: exterior

But with the renovation complete, and a new baby on the way, the time had come for the family of three to put the house on the market and shop around for a new project, one that would give them more space and some land of their own. As luck would have it, they found their next dream home immediately. The problem was, their own house had only just gone on the market.

A decision needed to be made! And quickly. “Houses with land attached are pretty scarce where we live,” explains Kirra. “And everyone wants them, so we really didn’t want to miss out, but it’s pretty scary to commit to another mortgage before you sell the house you already have.”

Before: dining
Before: dining room
After: Dining
After: dining room

Kirra and Blake had some options – but were pretty keen to maximise the sale price of the house they had put so much work into and didn’t want to be in the situation of having to accept an inferior offer because they were under financial pressure.

They originally bought the house for $320,000 and with Blake doing all the building work himself, the complete renovation came in at just over $70,000. The couple had put it on the market for offers over $535,000.

Before: bathroom
Before: bathroom
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After: bathroom

In their situation, they had a few options:

  • Take out bridging finance to secure the new home;
  • Put down a deposit on the new house with clauses in the purchase contract to give them an out if theirs did not sell;
  • Withdraw equity from their own home to put down a substantial deposit on the new one; or
  • Just sit tight and hope theirs sold quickly.
After: garden
After: garden
After: garden
After: garden

Given the appeal of their freshly renovated home to young families, and with assurances from their agent it would sell relatively quickly, Kirra and Blake decided to wait it out in the hope it sold before the new one was snapped up by somebody else! And while this was the easiest way to go in terms of organising new loans and so on, it was probably also the one with the most potential for heartache if they missed out.

After: bedroom
After: bedroom

But thankfully for Kirra and Blake, their home sold within a matter of days and they were able to put in an offer for the next house before anyone else. Their story had a happy ending because the home was exceptionally well renovated and was priced to meet the market.

But even when things don’t fall into place as easily as they did for Kirra and Blake, the good news is there are usually ways to secure your next purchase, even if your current property is still on the market. These are detailed here.

It can be a juggling act, but take heart, it can be done!

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas. 

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RENO ADDICT

Should you buy before you sell?

House for sale

Number crunching is one of the less exciting parts of renovating – but unfortunately it’s also one of the most important. Whether you are turning over an investment property or renovating your home as a long-term nest for your family, it makes sense to know you are not overcapitalising and the money you are spending is adding value in the long-term. What’s more, the scope of the work can often determine the best type of finance you need to put in place.

This is the third part in a series about steps to take to ensure the hard work you put into your renovation pays off financially.

House for sale

So you’ve finished your reno and your house is on the market. But what do you do when you find the next house of your dreams but you have not sold your original one yet?

You have a few options, all of which have their pros and cons.

The first is taking some of the equity out of the home you have on the market to put down a deposit on the home you want to buy.

For example, the house you are selling is worth $500,000. You owe $200,000 and have $300,000 equity, so to procure the home you want to buy you can transfer some of this equity to use as a deposit.

Pros:

  • You can secure the house now and either move in or get started on your new reno;
  • You’re buying your new home at today’s prices;
  • You can shop around for a better loan for your new home as you have a deposit for a completely new transaction and will be able to pay out your existing loan once you’ve sold; and
  • You don’t risk losing the house of your dreams.

Cons:

  • You’re holding two mortgages which need to be serviced, because in effect, you have borrowed 100% of the cost of the new house on top of the loan you already have;
  • You have two houses to maintain; and
  • You are sweating on selling!

The second option is a bridging loan. These are useful when you don’t really have enough equity in the house you are selling to make it worthwhile pulling money out of your existing loan for a deposit on the new house.

Bridging finance is no longer as expensive as it used to be and if you have the means to service a bridging loan, most lenders should negotiate with you on a rate that is usually pretty well in line with the current home loan offering.

Pros:

  • You can secure the house now and either move in or get started on your next reno;
  • You’re buying your new home at today’s prices; and
  • You don’t risk losing the house of your dreams.

Cons

  • It can be expensive to set up;
  • You usually have to stick with the lender you are already with which means you can’t shop around for a better deal;
  • You need to service two home loans until you sell your existing home; and
  • You are putting yourself under financial pressure which may entice you to sell your home for less than it is actually worth just to ease the stress.

Room

Your third option comes in to play when you simply don’t have the funds to service two loans and you need to sell your place first to free up the money to buy the next one.

But if you really want to secure the house of your dreams, this is when you can start working with your solicitor to put some clauses into the purchase contract that make it possible, but give yourself some breathing space and some outs in case yours does not sell.

There are clauses that can be set up for a delayed exchange on a purchase. This means you’ll pay a small holding deposit initially, but exchange can be subject to either the sale of your home or finance.

Your solicitor could also negotiate a six-month settlement that will allow you to secure the house with a holding deposit, but give you some time to sell yours. This one’s not for the faint-hearted because you are really putting yourself in the pressure cooker to offload your place within the six months.

Again, the pros are:

  • You aren’t tied to the lender you are already with because the sale is not linked financially to the purchase. This means you can shop around for a better loan for your new home because you’ve given yourself time to sell your own house and organise finance on the new one;
  • You secure the house now and you can either move in or get started on your next reno;
  • You’re buying your new home at today’s prices; and
  • You don’t risk losing the house of your dreams.

But the cons:

  • Sometimes you’ll come up against a seller who is reluctant to give you time to sell, especially if it’s a seller’s market or a hotspot, such as certain suburbs in Sydney; and
  • You will lose the house if yours doesn’t sell.

So the short answer to the question is yes; you can buy again before you sell your existing home, and there are number of ways you can make it happen — you just have to decide which best suits your circumstance and will work in your favour financially.

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas. 

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DIY RENO ADDICT

How much should I spend on my reno? Part one: valuations

Kitchen with Island, Sink, Cabinetrs, and Hardwood Floors

Number crunching is one of the less exciting parts of renovating – but unfortunately it’s also one of the most important. Whether you are turning over an investment property or renovating your home as a long-term nest for your family, it makes sense to know you are not overcapitalising and the money you are spending is adding value in the long-term. What’s more, the scope of the work can often determine the best type of finance you need to put in place.

Kitchen with Island, Sink, Cabinetrs, and Hardwood Floors

This is the first part in a series about steps to take to ensure the hard work you put into your renovation pays off financially.

Know where you stand – valuations matter!

Start with the end in mind – is the work you are planning going to add more value to your property?

Even if you plan to stay in your home for the foreseeable future, it’s important the work you undertake not only improves your lifestyle, but that it’s work that actually adds to the value of the house and you know where you stand financially up front.

In my work as a broker, I always advise clients to get two valuations. Having your house valued by both a real estate agent and a registered valuer is one of the most beneficial steps you can take. It’s best to have valuations from both, because the two tend to look at property values differently. Real estate agents look forward to what people will pay in the future, while valuers look in the rear vision mirror at what people have already paid for similar properties.

Show them your plans and ask them what they think your property will be worth when the work is completed. A good rule of thumb with valuations from real estate agents and valuers is to work with a number somewhere in the middle of both estimations – agents tend to be optimistic and valuers conservative.

Once you have an idea of what your home is currently worth, what it’s estimated to be worth on completion and how much the work you are planning is actually going to cost, it will become apparent whether or not your renovation is going to add value.

Swimming pool

Ask the real estate agent what buyers are looking for in your area and how your house compares. For example, if they tell you swimming pools are turning people off buying, you may need to reconsider your plans to install one, especially if your budget is going to be tight. It may make more sense to use your pool money to install another bathroom or an extra bedroom.

As well as obtaining professional valuations, make sure you do some legwork yourself. Go to as many open houses in your area as you can to get a feel for what’s on the market and how much it’s fetching.

Use your valuations to guide your design choices. If your house has already significantly increased in value thanks to its location, it is less likely you will spend more than the value you’ll add in the long-term and you would probably do well to upgrade the finishes you install. Look at the kitchens and bathrooms in similar houses that are on the market and use them as a guide as to what buyers are expecting. Similarly with floor plans and soft furnishings.

Your valuations can also steer you in the right direction when it comes to how you are going to finance the work. If you are planning a major renovation that’s going to add significantly to the value of your home, you may choose to leave more of the work in the hands of a builder and take out a construction loan that is paid directly to your contractor.

For a smaller DIY reno that is going to enhance your lifestyle more than the value of your home, a personal loan could be the way to go, while a renovation you plan to complete in a few stages may be best serviced by leveraging the value of your home as work progresses.

Arming yourself with a thorough knowledge of the market before you begin is a solid foundation for any reno, especially one that’s close to your heart!

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas. 

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RENO ADDICT

How to finance your reno: part three

Furnished living Room in Luxury Home

Renovating a house – for lifestyle or profit – is a big financial commitment. And for most of us, that means borrowing the money to do the work. There are lots of different ways to finance a renovation but the key to optimising your success is to find the one that best suits your situation.

Furnished living Room in Luxury Home

This is the third in a series (read the first and second article) outlining the different ways a renovation can be funded and how you can navigate the huge range of products to find out which is the best option for you. Renovating can be a stressful undertaking, so knowing you have made the right decision about funding your project from the beginning is a great way to start!

Construction loans

Has the time come for your game-changing reno? A second storey or a total revamp that takes your home to the next level? If so, financing your project with a construction loan is often one of the cheapest and best ways to fund it.

Construction loans are great for major renovation projects; for example, a renovation that needs council approval or when building costs are going to exceed $100,000 and you don’t have enough equity sitting in your home to draw from.

There are many reasons people find themselves needing a construction loan and it’s always an exciting stage to be at, because it means change is in the air – there’s a baby due, so a family needs a bigger house; or someone has decided to open a home office and needs to build one; or a couple has decided to bite the bullet and finally make their dream home a reality.

This type of financing works by basing the loan amount on the estimated value of your home after the renovation is complete; and rather than your lender giving you access to the money up front, instalments are paid directly to the builder as the project progresses. You will generally be able to borrow up to 90% of the completed value of your home.

When you apply for a construction loan, lenders need to see your council-approved plans and your contract with a licensed building contractor. At this stage, the lender will often send a valuer to your home to ensure your project will meet the loan criteria.

Reno iStock

Lucy and Ross came to see me when they needed to borrow $300,000 for a major renovation on their home in Newcastle. The plan was to gut the existing two-bathroom, three-bedroom house, build on two more bedrooms, a bathroom and a large family living space and deck out the back.

They originally bought the home six years ago and already had a $400,000 mortgage. Before the work, their home was worth $600,000, so borrowing the $300,000 up front wasn’t an option because the total loan of $700,000 would have exceeded the home’s pre-reno value. So I suggested they take out a construction loan so they could borrow all the money they needed to complete their renovation.

The first step was to estimate the completion value of the home. Not only was this a vital step in the construction loan process, it was also important to ensure Lucy and Ross would not be over-capitalising on their home when they did the work. (We will talk about over-capitalising in the coming weeks).

It was estimated their home would be worth $900,000 once the work was done – meaning they would owe $700,000 on a $900,000 home, which was well within 90%.

It was all smooth sailing for Lucy and Ross, which meant at the end of the process their renovation was finished exactly the way they wanted it done; and they were able to settle happily into their dream home for the foreseeable future, knowing that their repayments were affordable and the value of their house had increased and would more than likely, continue to do so.

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas. 

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RENO ADDICT

How to finance your reno: part one

Renovating a house – for lifestyle or profit – is a big financial commitment. And for most of us, that means borrowing the money to do the work. There are lots of different ways to finance a renovation but the key to optimising your success is to find the one that best suits your situation.

Screen Shot 2015-07-01 at 12.38.30 pm

This article is the first in a series outlining the different ways a renovation can be funded and how you can navigate the huge range of financial products to find out which is the best option for you. Renovating can be a stressful undertaking, so knowing you have made the right decision about funding your project from the beginning is a great way to start.

Option one: leveraging equity

One of the cheapest and simplest ways to finance a renovation is to release the existing equity in your home and make use of cheap home loan rates, with most banks offering a range of options when it comes to terms and conditions.

Josh and Penny were a young couple who came to see me to find out how they could finance a renovation they had planned for their first home. The couple were newlyweds when they bought their first house about four years ago. It was a basic two-bedroom, one-bathroom home with a combined living-dining space and an original kitchen.

Since buying the home with a loan of $300,000, the couple had not done any work on it besides maintaining it and keeping it neat and tidy. But in that time, their family had grown to include a new baby and they wanted to update the kitchen and redo the bathroom.

Screen Shot 2015-07-01 at 12.41.00 pm

Josh and Penny had bought their home in an up-and-coming area, so we decided that releasing the equity in their home was the best way to go in terms of funding the renovation. A new valuation on their home came in at $500,000; and because they were able to borrow up to 80% of its value, they now had access to finances of up to $400,000.

Since their original loan was only at $300,000, it released another $100,000 for them to complete the work. This was far and away more than they needed to do the kitchen and bathroom, so they decided that while they were in reno mode, they would build an outdoor entertaining space as well.

We found the best loan available for them – which happened to be with their existing financial institution – and the money was made available to them in their redraw account. The valuation was free and the whole process was a stress-free way of financing their renovation, which finally cost $80,000, leaving them with a mortgage of $380,000.

Once the work was complete, we had the home valued again and that came in at $600,000, which was a great result for Josh and Penny, who had not only enhanced their lifestyle, but had also made a wise move in terms of investment.

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas.