Types of Loans to Finance a Granny Flat

July 26, 2023

Wondering how you could possibly finance a Granny Flat? Granny Flats, whether for expanding living space or generating rental income, often require specific financing solutions to suit individual circumstances. Its a common scenario that Australian's are lending against every day. This article delves into various lending scenarios and loan options designed to finance a Granny Flat.

granny-flat-investment

Owner Occupied - Cash Out Using Equity

Homeowners with ample property equity and steady income can opt for a cash-out loan to cover the entire Granny Flat project. Such loans allow borrowing the full or partial project cost, with funds conveniently deposited into a savings or offset account for flexible usage during construction.

Most lenders don't mandate a fixed-price build contract, though some may request evidence for cash-out policy compliance. Importantly, rental income is not considered for lender servicing until the Granny Flat's completion. Certain lenders permit cash-out for this purpose, except when the project involves renovating an existing structure, which might necessitate a construction loan.

Owner Occupied - Construction Loan

In cases where homeowners lack sufficient equity and income for the total Granny Flat cost, a construction loan becomes a viable option. This loan facilitates borrowing the required amount, with the lender controlling fund releases based on a Progress Payment Schedule.

To secure a construction loan, a fixed-price build contract and Progress Payment Schedule are typically mandated by the lender. Rental income can be considered for lender servicing, and a Granny Flat valuation becomes necessary. The property value is then augmented by the completed Granny Flat or renovation, forming the basis for lending. Fortunately, most lenders accept construction or Granny Flat loans.

Investor - Cash Out or Construction

Investors exploring Granny Flat projects have the choice between cash-out loans or construction loans, contingent upon their equity and income situation. If rental income and valuation meet requirements, a cash-out loan is plausible. Conversely, if these criteria fall short, investors may require a construction loan.

During consultations with the lending team, investment strategies are thoroughly discussed, including options like interest-only or principal and interest (P&I) payments, offset accounts, etc., to maximise investment returns.

credit-facilities-700x430

Reverse Mortgage

For older homeowners with significant property equity, yet retired or devoid of regular income, a reverse mortgage presents a suitable alternative. Such loans are determined by the borrowers' age and property value.

Reverse mortgage scenarios may not always require fixed-price build contracts, though this is subject to specific factors. Notably, rental income is not considered for lender servicing, and the property value remains unchanged, as lending is based on its current value.

Crucially, reverse mortgages can solely be undertaken by property owners on the title, with dependents or family members ineligible to contribute income towards loan purposes.

10BrisbaneClients-18

Key takeaway: Speak to a lender about all the options

Securing financing for a Granny Flat project entails an array of loan options catering to diverse situations. Homeowners and investors can select from cash-out loans, construction loans, or reverse mortgages, aligning with their equity, income, and unique objectives. Seeking guidance from seasoned financial advisors and lenders is advisable to determine the most appropriate loan type and secure financing for their Granny Flat venture. It is prudent to thoroughly explore each loan's terms, interest rates, and repayment options before arriving at a final decision.

Speak to Cubitt's about your Granny Flat Investment

At Cubitt's, we understand that financing a Granny Flat project can be a crucial aspect of turning your dream into reality. That's why we are proud to work with trusted mortgage experts, George Lemon and Peter Johnson, at Mortgage Choice. With their extensive knowledge and experience in the lending industry, George and Peter can help you navigate through the various loan options available and find the best lending solution tailored to your specific needs.

Whether you are a homeowner looking to cash out on your equity, an investor seeking to maximize returns, or a retiree considering a reverse mortgage, George and Peter will guide you every step of the way to ensure a smooth and successful financing process. Together, we are committed to bringing your dream granny flat to life, making it a seamless and rewarding experience for you.

Our friendly team understand that building a home is a unique and personal experience. We’re ready to listen to your needs, and provide customised Granny Flats to suit your lifestyle requirements such as wheelchair ramps and wider doorframes.

Are your ageing parents reluctant to downsize? Get them excited to move with our  extensive range of 2 bedroom Granny Flats in NSW and ACT

Have a limited budget? View our fantastic range of 1 Bedroom Granny Flats in NSW and ACT

For more information, call our award-winning customer service team on 1300 721 150 or book a Site Assessment using the form below

Free On-Site Assessment at Your Property

Interested in finding out how to make a positive investment from a Cubitt's Granny Flat or Home Extension? Get in touch for a no-obligation site inspection today.

If you are looking to purchase a new property and want to do a Granny Flat Suitability Check - please use this form instead.

We require your name, email and phone number to get back to you - and the more you can tell us about your build project, the more effectively our local teams can help.

VIEW MORE OF OUR

Recent Blogs

How to Determine Bush Fire Attack Level (BAL Rating)

The Bushfire Attack Level (BAL) rating is a critical assessment that categorises the potential bushfire risk for properties in Australia, spanning from LOW to FZ, representing various levels of fire intensity and potential hazards. Use this article to do your own estimation of your potential BAL rating

Read More about How to Determine Bush Fire Attack Level (BAL Rating)

Building a Granny Flat in the Blue Mountains. Q&A with Kate Cubitt.

Explore the nuances of building Granny Flats in the NSW Blue Mountains through our Q&A with Kate Cubitt, an expert in the field. Learn about size limitations, property location restrictions, approval processes, and considerations for bushfire-prone areas. Kate also discusses the option of renting out Granny Flats and provides insights into the costs and design guidelines for these unique living spaces amidst the stunning Blue Mountains landscape.

Read More about Building a Granny Flat in the Blue Mountains. Q&A with Kate Cubitt.

Embracing the Future: Cubitt’s Passively Designed Homes Ready for Faster Council Approval

Discover a new era in home construction with Cubitts’ Passively Designed Homes. Already NCC compliant, our energy-efficient designs not only help ensure we are in the best possible position to meet Basix compliance but also offer a future-focused lifestyle. We’re ready for faster council approvals while reducing your carbon footprint and energy costs. Embrace sustainability, efficiency, and comfort—all in one place.

Read More about Embracing the Future: Cubitt’s Passively Designed Homes Ready for Faster Council Approval

Quennie: International Architect Extraordinaire with a Passion for People and Spaces

Collaborating with Quennie at Cubitt’s for Custom Design Packs or Granny Flat alterations ensures an empathetic and expert partnership. With her extensive architectural experience, Quennie excels at understanding your requirements, translating them into designs that surpass expectations. Her attention to detail and commitment to your vision guarantee a meticulously tailored outcome. Working with Quennie guarantees your ideas will come to life in ways that resonate, leaving you thoroughly impressed with the final result.

Read More about Quennie: International Architect Extraordinaire with a Passion for People and Spaces

Can You Build a Granny Flat on Lot Sizes Less than 450m2?

Want to build a Granny Flat on a less than 450m2 block? Good news! Cubitt’s can do this for you. Regulations provide avenues for approval, debunking size myths. Whether it’s a Complying Development Certificate (CDC) or a strategic Development Application (DA), explore the possibilities of smart living with Cubitt’s, even on sub-450m² lots. Your dream space awaits!

Read More about Can You Build a Granny Flat on Lot Sizes Less than 450m2?

What ROI will a Granny Flat deliver in 2023?

Discover the untapped potential of Granny Flats as a smart investment avenue in NSW and ACT. While initial returns might seem modest, these secondary dwellings hold the promise of impressive long-term financial gains, offering a compelling proposition for those seeking to build wealth strategically. We explore real scenarios, and expert insights, illustrating how Granny Flats can be a game-changer in your investment portfolio.

Read More about What ROI will a Granny Flat deliver in 2023?