Unlock the secrets to financing a renovation project

A construction loan for a renovation project lets you buy a property and fund the renovation work in stages as the job progresses.

You're not borrowing the full amount upfront. The lender holds the renovation portion and releases it in instalments based on progress inspections. You only pay interest on what's been drawn down, which means your repayments start lower and increase as more funds are released. For plasterers looking to buy a renovation project and do the work themselves or coordinate trades, this setup gives you access to the capital without paying for it before you need it.

The key difference between this and a standard home loan is the progressive drawdown. The bank wants proof the work is happening before releasing the next payment.

How the Draw Schedule Works on a Renovation Loan

The lender releases funds in stages tied to specific milestones in the renovation. Each draw requires a progress inspection by a bank-appointed valuer or quantity surveyor who confirms the work is complete to the standard claimed. Once approved, the next payment is released directly to you or your builder.

Consider a plasterer buying a worn-out weatherboard cottage for renovation. The loan might be structured as 20% on settlement, 30% after demolition and framing, 30% after rough-in (including all wall sheeting and first coat), and the final 20% on practical completion. If the total loan is $450,000 with $350,000 for purchase and $100,000 for renovations, you'd start paying interest on $370,000 after the first draw, not the full $450,000.

Progress inspections usually cost between $150 and $300 per draw, paid by you. Some lenders bundle this into a single Progressive Drawing Fee charged upfront. Factor this into your budget because four or five inspections can add $1,000 to $1,500 to your costs.

Fixed Price Contracts vs Cost Plus for Renovation Finance

Lenders prefer a fixed price building contract with a registered builder because it caps their risk. If the job blows out, the builder wears the cost, not you or the bank. This makes approval more straightforward and often attracts lower interest rates.

If you're doing the work yourself or managing sub-contractors directly, you're working on a cost plus basis. The lender has less certainty about the final cost, so they'll want a detailed scope of works, quotes from each trade, and a bigger buffer in the loan amount. Some lenders won't touch owner builder projects at all. Others will, but they'll cap your loan-to-value ratio at 80% and require you to show relevant trade qualifications or building experience. As a plasterer with provable income and trade credentials, you're in a stronger position than most, but expect more scrutiny on your builder's insurance and council approvals.

Interest-Only Repayments During the Build

Most construction loans offer interest-only repayments during the renovation period, usually capped at 12 months. You're only paying interest on the amount drawn down so far, which keeps cash flow manageable while you're funding materials and paying sub-contractors.

Once the renovation is complete and the final draw is released, the loan converts to principal and interest repayments over the remaining term. Some lenders automatically switch it, others require you to confirm. If you don't actively convert, you might stay on interest-only at a higher rate, so confirm the terms in writing before settlement.

This structure works well if you're doing the plastering and some of the other trades yourself. You're not paying down principal while you're working on the property, which frees up cash for materials and tools.

What Lenders Look for in Your Renovation Loan Application

The lender wants to see three things: proof the property is worth renovating, proof you can afford the repayments, and proof the renovation will actually happen.

That means a valuation showing the as-is value and the expected value after renovation. If those numbers don't stack up, the loan won't get approved. You'll also need a detailed scope of works, quotes or a fixed price contract, council approval if required, and proof of your income. For self-employed tradies, that usually means two years of tax returns or a letter from your accountant.

You'll also need to show the work will commence within a set period from settlement, usually six months. If you're waiting on council plans or a development application, get that sorted before you apply. Lenders won't release funds until all approvals are in place.

Borrowing Capacity and Deposit Requirements

Your borrowing capacity is assessed on the total loan amount, not just the purchase price. That means the bank will calculate serviceability based on the combined debt, even though you're not drawing it all at once.

Most lenders require a 10% to 20% deposit for a renovation loan, depending on whether you're using a registered builder or going owner builder. If you're managing the job yourself, expect the higher end of that range. Lenders see more risk when there's no fixed price contract in place.

If your deposit is below 20%, you'll pay Lenders Mortgage Insurance unless you qualify for an LMI waiver. Some lenders offer waivers for tradies in certain occupations, including plasterers, if you meet their income and employment criteria.

Council Approval and Development Applications

If your renovation involves structural changes, extensions, or changes to the building envelope, you'll need council approval before the lender releases any funds. Even if the work is exempt under your state's planning rules, the lender might still want a letter from a certifier or building surveyor confirming that.

Development applications can take anywhere from six weeks to six months depending on the council and the scope of work. If your settlement is coming up and the DA isn't approved yet, you risk losing the property or paying penalty interest while you wait. Get the DA lodged as soon as your offer is accepted, not after you've settled.

Some councils require detailed plans stamped by a structural engineer or building designer. If you're doing the design work yourself, check whether the council will accept it or whether you need a registered professional to sign off.

When a Renovation Loan Makes Sense for Plasterers

If you've got the skills to do most of the work yourself and you're buying a property that needs a full internal refit, a renovation loan gives you the cash to fund materials and pay sub-contractors without tying up your savings upfront. You're only paying interest on what you've drawn, and you're adding value faster than the interest is accruing.

It also works if you're buying a property in an area where renovated stock is tight and you can add $100,000 to $150,000 in value with $60,000 to $80,000 in materials and subcontractor costs. The equity you create can be used to expand your property portfolio or fund other investments down the line.

Call one of our team or book an appointment at a time that works for you. We'll walk through your numbers, your renovation plan, and line up a lender that actually understands how tradies work.

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