How to Finance a Knockdown Rebuild

Mar 30, 2018

So you’ve got the perfect block of land in the perfect location, and all you want is a brand new home to suit your family and lifestyle.

A knockdown rebuild can be a great solution, but it can come with not-so straightforward financing.

To finance a knockdown rebuild, you need to know the ins and outs of this complex process.

Our blog will shed light on your options, but be sure to speak with a home loan specialist before signing your building contract.

How much does a knockdown rebuild cost?

Before diving into the financing solutions and tips, let’s consider the cost of your exciting knockdown rebuild.

Costs will depend on your location, block and home size. The larger your current house is, the more expensive the demolition will be.

You should also factor in asset protection to protect against damages to footpaths, gardens and driveways.

But for a knockdown rebuild demolition, costs usually range from $10,000 to $15,000 in Victoria.

You’ll be pleasantly surprised to learn that knockdown rebuilds are cheaper than a comprehensive renovation because you don’t have to work around the original building elements and there’ll be no surprise expenses along the way.

For the same reasons, a knockdown rebuild is also more transparent and easier to budget for compared to a whole-home renovation.

How to finance a Knockdown Rebuild:

1. Get a construction loan

The most common way to finance a knockdown rebuild project is through a construction loan.

These loans are different to standard home loans, which are designed for buying established property.

Construction loans let you draw down on borrowed funds as you go, rather than receiving a lump sum from the bank.

Construction loans use what’s called “progressive drawdown”, giving you a piece of funding for each stage of construction.

With construction loans, you’ll be able to borrow up to 95% of the value of the land plus construction costs (and minus demolition costs).

The benefit of construction loans is that you pay interest only on the amounts you’ve drawn down, rather than the full amount.

When you build new with JG King Homes we keep you up to date on your construction every step of the way. You’ll even get to make appointments to tour the building’s progress with the site supervisor.

Not sure how the construction stages work? Read our guide on The Home Building Process.

2. Refinance

If you’ve already got a home loan, you may speak to your lender about refinancing.

In this option, you’d make use of the equity gained on your home to reduce your loan-to-value ratio, which can save you a lot of money.

With a refinance, you may also qualify to have your lender’s mortgage insurance premiums waived.

3. Secure a relocation loan

This financing option is for people who live in one location, and choose to do a knockdown rebuild in another location.

Relocation loans themselves come with one great benefit: you can secure a loan before selling the home that you currently live in.

Relocations loans also have plenty of leeway in terms of timeframes. They typically allow 6 months for construction and 6 months for you to sell.

4. Time your valuations carefully

You can take the sting out of your financing with careful and considered valuations.

Because the value of your old home will vary from before demolition and after demolition (and even once construction commences), a valuation will impact how much you can borrow and whether you need a lender's mortgage insurance.

Strategic timing is a method of finding the best financing solution for your knockdown rebuild.

We recommend speaking to your home loan specialists to choose the best time for your valuation.

Knockdown Rebuild with JG King Homes

Your knockdown rebuild is an exciting endeavour that doesn’t have to be burdened by crippling financing.

Fortunately, knockdown rebuilds come with great financing options compared to the standard home loan, such as a construction loan which minimises interest, or relocation loan which can be secured before you’ve sold your old property.

When you finance a knockdown rebuild, you can also carefully time your valuations to get the best value for money.

Build with JG King Homes and you’ll get a stunning new home design, better than anything possible with a renovation.

Want to know more about how much a knockdown rebuild costs? Get in touch with the team at JG King Homes today.