A lender will generally consider your income and expenses as well as your access to savings, self-managed super, assets or equity in other properties. They will also look at your history and credit rating. If the granny flat is being built as an investment property, the lender may consider the future rental income in your favour.
If you already have equity in your primary home [i.e. it is worth more than you owe the lender], you may be able to draw on that to finance the build, sometimes up to 100% of the value of the granny flat. A property valuation will be necessary to establish the available equity. A top-up loan with the same lender will not require a new loan application so this is often the easiest route. You could also consider a line of credit but those loans have higher interest rates.
If you do not have enough equity in your primary home, our broker can help you organise a construction loan. The lender will consider the finished value of the granny flat and the value of your existing home. Construction loans are released to the builder in stages.
We have briefly listed the stages below that most banks generally approve:
2. Slab down
5. Fit off
6. Practical completion
During construction, you can enjoy interest-only repayments, with the capital repayments added on completion.