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How Do I Get a Loan to Build a Granny Flat? posted on the 11th March 2014

The rise of the Granny Flat phenomena is growing Australia wide as we speak!  There is a chronic housing shortage across the board and, coupled with housing affordability it seems to be the next logical step to be looking at.

Western Australia is the latest state to jump on board and now allows the humble Granny Flat to be built as an investment as well as for the immediate family.  Homeowners and investors alike have begun to realize the huge potential of this – I’m talking about a positive return on investment (ROI).  The maths is really quite simple, particularly if you are in a negative geared situation : this may be the way to turn that situation around.

So how can you secure your granny flat construction loan?  The simplest way to secure funds for your new granny flat is either via a ‘Redraw” facility or a ‘Line a Credit’ on your existing housing loan.  To put it simply : If you owe $200,000 on a property that is worth $400,000 you have $200,000 in equity.  And say a granny flat is going to cost you $110,000, you could finance the building of through the $200,000 equity you have.

If you don’t have any equity or don’t want to use any redraw facility you have the next best thing is a ‘Construction Loan’.  This loan product is slightly different from a standard mortgage loan as you use the value of the existing property and the proposed construction build as security against the granny flat loan.

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How do I apply for Finance?

If you have an existing bank manager or mortgage broker, this is probably your first port of call.  As this is a Queensland first initiative, Ipswich City Council is a leader in the approval for Granny Flat or ‘Auxilliary Dwellings’ for investment purposes.  We here at Ipswich Granny Flats have been instrumental in the building of the first two new builds and in the process for a number of other stand alone, purpose built Granny Flats.  Each individual owner has had their own personal financial situations, and each one has been financed differently.

But essentially the process has been the same, with the lender needing two documents as part of the approval process :

–                Your Granny Flat Approval from Ipswich City Council
–                Your Builder’s Contract

There are a number of ways that you can reduce costs associated with financing the building of your Granny Flat.  It’s not brain strain stuff and it pays do some of your own research.  Here are some ways to minimize these costs :

–                Home Loan Establishment Fees
–                Granny Flat Approval
–                Construction of the Granny Flat
–                Valuation of the property

As part of the pre-approval process the lender will do a Valuation.  Find a lender that doesn’t charge YOU.  Ask about Loan Establishment Fees or any other fees and charges they may have.  Shop around, and certainly don’t be afraid to ask what is the best they can do for you  – it’s amazing what you get if you ask for it …

One of the requirements for your finance is the actual formal approval for the Granny Flat.  For Ipswich City Council, either a Private Certifier or one of the council’s certifiers can provide this for you.  My advice to you is to choose a designer / draftsman that is experienced and familiar with the council’s requirements for the local Ipswich area.  This will ensure that between the design and final approval process, it will be as smooth and easy flow as possible, thereby keeping your costs to a minimum.  You need to engage the experts in their field ie those that deal with this every day – and Ipswich Granny Flats are the leaders for your granny flat builds.  We sold the land and have been instrumental in building the first brand new build for the buyers to live, and have completed the first new build for interstate investors in Raceview.  It’s a very exciting time for us all …

The final and probably most important part of the equation is the Building Contract which needs to be completed prior to the loan approval.  As with a contract for a house or land, the building contract is a legally binding document that should be prepared by a Licenced Builder.  It will either be on a Building Services Authority (BSA), Master Builders Association (MBA) or other commercial Building Contract such as provided by the HIA.  Your certifier will also want evidence of insurance for the project and Long Service Levy if applicable.  ‘Home Warranty Insurance’ also needs to be addressed for each project, and you will find your lender won’t release either the progress payments or the finance without this.  This is extra protection for you during the whole granny flat build process.

Summary : Without the formal building and plumbing Approval from Ipswich City Council and the Building Contract from a Licenced Builder the lender will not approval your Construction Loan.  So have all your ducks in place first …

We would also recommend that you use a lender or broker with the experience and the local knowledge of the whole process, someone who lives and breathes Ipswich – we can point you in the right direct here as well, just ask us!

Ipswich Granny Flats

We here at Ipswich Granny Flats have done the only developments of this type here in Ipswich under the new relaxation of the planning scheme.  With building experience spanning 35 years, and a hands on, local knowledge and understanding of the specific planning requirements, why would you look at using anyone else?  It’s a no brainer for those looking for a quick effective solution to their families needs or for the astute investor looking to gain a positive return on investment (ROI)!

The second new build has been completed, but its actually the first project to have Ipswich City Council approval from a pure investment point of view – we are the local market leaders!  Just ask us, we’ll tell you …

Building Payments, the drawn down ..

An initial 10% deposit based on the total contract price, on signing the building contract will be required.  Once construction then begins, it will progress on a drawn down payment system.

Through the progress of the job, payments for each stage will be requested through to final completion.  The lender will have a loan assessor / registered valuer confirm each stage before signing the next progress payment approval.  Once construction is complete and the Certifier issues the Form 21 Completion Certificate, final payment will then be made.  It’s at this stage that your Construction Loan then coverts to a standard loan product whether it’s setup up as a redraw facility or interest only loan

Turn Key product

This is what we like to do best.  We understand that for most home owners or investors, time is so precious.  Who wants to be buying clothes lines, putting in dividing fence lines or worrying about carpet and curtains?  Let us do this for you – it’s what we do, let us finish it off …

We hope the above has been a guide that helps you understand how to secure a granny flat construction loan

Want further information about finance to assist you in

the Granny Flat process?

Call Sonia at Ipswich Granny Flats – 0403 309 136

Written by Sonia Woolley