Avoid these traps when financing a renovation

My recent reno was a crash course in dealing with builders. If you’ve gone through the process yourself, you’ll know what I mean. If you haven’t, here are some tips to minimise foul-ups.

1. No, you can’t do it cheaper

I’d be a rich lady if I had a dollar every time a client said, “The project is budgeted at [insert large number] but I reckon I can do it for cheaper.”

Cue a hollow laugh. It never happens.

There’s a shortage of tradies, rampant inflation in building materials and all sorts of hurdles that never existed in simpler times. At the very least, you’ll need to get several quotes and drill down into the details. And then add more to the budget, just to be sure.

It’s not just about your wallet. It’s what lenders require.

2. Banks will add up to 15% to your estimate

…And that’s on top of what your builder has already included for contingencies.

You can’t argue the toss. It’s the bank’s process and the bank’s money. They will look very closely at your ability to borrow, and take a conservative view.

In this, they’re following the law. Every lender in New Zealand has to comply with the Responsible Lending Code, which spells out what banks must do to avoid landing borrowers with debts they can’t manage.

It doesn’t matter how long you’ve been with a bank, and how much you’ve borrowed and repaid in the past. There are no exceptions.

3. Some banks will need a QS report

Many lenders also insist on a report from a Quantity Surveyor. Once again, it’s about checking to see if your sums are realistic before they advance any funds.

They may also require a report from a registered Valuer, showing a valuation before and after the works. This is because they want to check how much security they have, and then ensure your renovations will add value. They’ll want to know their end position, too.

You’ll need to do it their way. There is now a computerised online system the banks use for valuations. Don’t waste your time or money setting up the valuation yourself. We are required to order the valuation for you, using this system.

And here are some personal lessons I can add to the above

I used a proper Licensed Building Practitioner, and I’m glad I did. These guys have a responsibility to point out and fix any issues they uncover – and trust me, they will find some! They can’t un-see anything they find when the toilet comes out or the roof comes off.

As a result, you need to have some ‘what the heck’ money in your budget. Who knows what the renovation process will reveal?

Allow plenty of time and avoid wishful thinking. And talk to us early in the process.