The easiest way to finance a renovation project

A construction loan for a renovation project lets you buy the property and fund the build work in stages, paying interest only on what's been drawn down so far.

If you're a plasterer looking at a property that needs serious work, the usual home loan doesn't cut it. You can't borrow the full amount upfront because the property isn't worth what you're paying plus what you're spending until the work's done. That's where a construction loan comes in. You borrow for the purchase, then the lender releases funds progressively as the renovation moves through stages. You're charged interest only on the amount drawn down at each point, not the total approved limit.

What a construction loan actually covers

The loan covers both the purchase price and the renovation costs in one facility. The lender values the property based on its finished state, which is called the 'as if complete' valuation. You'll need council approval for the work, a fixed price building contract from a registered builder, and a detailed scope that shows what's being done at each stage. The lender uses that scope to set a progress payment schedule, usually four to six drawdowns tied to specific milestones like foundation, frame, lockup, and completion.

Consider a plasterer buying a weatherboard cottage for renovation. The purchase price sits at the lower end of the suburb range because the place needs a full internal strip-out, new plumbing and electrical, and a rear extension. The renovation budget is $180,000. The lender orders a valuation that confirms the property will be worth enough to support the total loan amount once finished. The broker structures it so the purchase settles first, then the renovation funding gets released as work progresses. After frame stage, the plasterer's own internal work gets funded through the next drawdown, cutting the time between finishing the job and getting paid.

How the draw schedule works in practice

The lender won't release funds until each stage is finished and inspected. Most lenders use their own valuer or an independent building inspector to confirm the work matches the contract before approving the next payment. You submit a drawdown request, the inspection happens within a few days, and funds hit the builder's account if everything checks out. There's usually a fee per drawdown, called a Progressive Drawing Fee, which sits around $300 to $400 each time.

You'll be making interest-only repayments during the build, calculated on whatever's been drawn down so far. Once the renovation is finished and you've drawn the full amount, the loan converts to a standard home loan with principal and interest repayments. Some lenders lock you into their construction product for six to twelve months after completion before you can refinance elsewhere, so check that upfront with your finance for tradies broker.

What lenders look for in a renovation project

Lenders want to see that the finished property will be worth more than the total debt. That means the 'as if complete' valuation needs to come in higher than the purchase price plus renovation costs plus any existing mortgage you're refinancing. They'll also want proof that the work is being done by a licensed builder under a fixed price contract, unless you're doing some of the work yourself as an owner builder, which brings extra paperwork and stricter conditions.

The other thing lenders care about is timing. Most construction loans for tradies require you to start work within three to six months of settlement. If the project drags on, they'll want updates and may even revalue the property to make sure the numbers still stack up. Delays cost you in holding costs, so having a realistic timeframe and a builder who can deliver matters more than shaving a few thousand off the quote.

Funding your own labour as a tradie

If you're doing the plastering work yourself, the lender won't pay you for your labour. They'll fund materials and any subcontractors you're paying, but your own time doesn't get a drawdown. You can build that cost into your budget by inflating other line items slightly or by making sure you've got enough cash flow to cover the gap between doing the work and drawing the next stage. Some plasterers structure it so their own work happens late in the build, after several drawdowns have already come through, which helps with cash flow.

You can also use a home loans for tradies structure that lets you pull a bit more at the start to cover your working capital while the job's underway. That depends on your deposit size and borrowing capacity, but it's worth discussing with your broker when you're planning the funding.

Renovation finance versus a house and land package

A house and land package is cleaner from a lender's perspective because you're building on vacant land with a fixed price contract and a volume builder. A renovation has more unknowns. You might find asbestos, dodgy footings, or drainage issues that weren't obvious at inspection. Lenders price that risk into the interest rate, which is why construction loan rates sit slightly higher than standard variable rates. The gap isn't huge, usually 0.2% to 0.5%, but it's there.

The other difference is that renovation projects are harder to cost accurately. A fixed price building contract helps, but there's almost always a variation or two once walls come down. Budget a contingency of 10% to 15% on top of your quoted renovation costs and make sure your borrowing capacity can cover it. If you run out of funding halfway through, you're either pulling money from somewhere else or refinancing mid-build, which is a pain.

What happens if the valuation comes in short

If the 'as if complete' valuation doesn't support the loan amount you need, you've got three options. You can increase your deposit, reduce the scope of the renovation, or walk away from the purchase. Lenders won't approve a loan where the finished value is less than the debt, or where it's so close that a small market shift puts you underwater. This happens more often with overcapitalisation, where you're spending $200,000 renovating a property that'll only be worth $50,000 more than comparable homes in the street.

Valuations can also differ between lenders, so if one valuation kills the deal, it's worth trying another lender before you give up. A broker who works with multiple lenders can shop that around without you having to reapply from scratch each time.

Interest rate options and repayment structures

Most construction loans sit on a variable rate during the build, then you can fix part or all of it once the loan converts to principal and interest. Some lenders let you fix the rate upfront, but you'll still only pay interest on what's drawn, so fixing doesn't give you much certainty until the full amount is out. If rates are rising and you're halfway through a six-month build, fixing after drawdown three or four might make sense.

You can also split the loan, fixing part and leaving part variable. That gives you rate protection without locking you out of making extra repayments or refinancing early. Talk to your broker about what structure fits your situation, especially if you're planning to refinance once the build is done and you've got some equity to work with.

Making it work as a plasterer

Plasterers are in a good spot for renovation finance because lenders see you as lower risk than someone who's never set foot on site. You understand building timelines, you know what corners get cut, and you're more likely to pick a property where the numbers actually work. If you're self-employed, you'll need the usual income documentation, but lenders also know that tradies in steady work have stable income even if the ABN is only a few years old.

The other advantage is that you can do some of the work yourself and call in favours from other trades, which keeps your renovation budget down and improves your equity position once the build is done. Just make sure the contract and drawdown schedule reflect what's actually happening, and don't try to hide owner builder work from the lender. If they find out mid-build, they can freeze drawdowns or call in the loan.

Call one of our team or book an appointment at a time that works for you. We'll walk through your renovation budget, get the 'as if complete' valuation sorted, and line up a lender who's comfortable with the project.

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