Renovation Loans: How to Finance Home Improvements

Home upgrades are exciting, but they are rarely cheap. A kitchen reno, bathroom upgrade, or full extension can cost tens of thousands. If your savings account isn’t enough to cover the project, you're not alone. 

Many Aussie homeowners turn to renovation loans to bridge the gap. These loans are practical, accessible, and tailored to suit specific types of renovations. 

This guide covers what renovation loans are, when to use them, how to qualify, and how to apply so that you can plan your home improvement with confidence and clarity.

Get Expert Finance Help with Your Gold Coast Home Upgrade, from Start to Finish.  Gold Coast mortgage brokers at LM Edge can help you assess your borrowing power, compare lenders, and guide you through every step of your renovation loan application. Call us at 07 4721 4772 to get started today.

What Are Renovation Loans?

A renovation loan is money borrowed specifically to fund home improvement projects. It can be secured (like a mortgage) or unsecured (like a personal loan). 

These loans help cover things like materials, labour, permits, temporary accommodation, or even energy-efficient upgrades like solar panels or batteries. The loan may be paid as a lump sum or released in stages through progress payments. 

If you’re renovating in stages, the lender might pay your builder directly after each milestone is completed. You then repay the loan through regular monthly repayments, often with either a fixed or variable interest rate. 

Most lenders will ask for a detailed plan of the renovation and a property valuation to understand your home's current and future value. Depending on the type of work, you might also need to provide council permits, architectural drawings, and a breakdown of estimated costs.

Common Types of Renovation Loans in Australia

There’s no one-size-fits-all when it comes to renovation finance in Australia. The best option depends on your renovation goals, property value, and current loan structure.

Home Loan Top-Up

This lets you borrow extra funds on top of your existing home loan. It's suitable if you've built up equity and want to keep everything under one loan.

Construction Loan

Designed for major structural renovations or rebuilds, it releases funds in stages. Payments are made as work progresses, reducing interest costs early on.

Home Equity Loan

You borrow a lump sum using the equity in your home as security. It’s ideal for large-scale projects and typically offers lower interest rates than personal loans.

Personal Loan

Unsecured personal loans are best for small or cosmetic upgrades. Approval is usually fast but comes with higher interest rates and shorter repayment terms.

Line of Credit

This revolving credit allows you to draw funds as needed, up to a set limit. It's flexible but requires discipline to manage repayments and interest.

Cash-Out Refinancing

You refinance your mortgage for a higher amount and use the extra funds for renovations. It’s useful if your home’s value has increased significantly.

Green Loan

Green loans support eco-friendly upgrades like solar panels, insulation, and water-saving systems. These may come with lower rates if used for energy-efficient renovations.

Redraw Facility

If you’ve made extra repayments on your home loan, you may be able to access that money. It's a low-cost way to fund minor renovations without taking a new loan.

Offset Account

While not a loan itself, linking your savings to an offset account can reduce interest on your loan. This strategy helps you build savings while preparing for a future renovation.

Home Equity Line of Credit (HELOC)

This combines the features of a home equity loan and line of credit. You borrow against your equity, but only pay interest on what you use.

Each option has pros and cons, and choosing the right one depends on your financial position, renovation size, and long-term goals.

Know Your Loan Options Before You Renovate on the Gold Coast—Talk to LM Edge.  Not sure if you need a home loan top-up, construction loan, or line of credit? LM Edge’s Gold Coast mortgage brokers will walk you through your options and handle your application from start to finish. Call us today at 07 4721 4772 and book a free chat with us!

When Should You Use a Renovation Loan?

Not every upgrade needs a loan, but some projects are too costly to pay for up front. A renovation loan makes sense when the improvements are essential, increase your home’s value, or boost livability. Timing and purpose matter just as much as cost.

Ideal scenarios include:

• Kitchen or bathroom renovations – These are high-impact areas that can significantly increase your home's value and comfort.
  
  
• Major structural repairs – Urgent fixes to foundations, roofing, or walls often require fast, accessible funding.
  
  
• Home extensions or adding rooms – Loans can cover the cost of creating more space for a growing family or future buyers.
  
  
• Energy-efficient upgrades – Adding solar panels, insulation, or batteries qualifies for some green loans and long-term energy savings.
  
  
• Post-purchase renovations – When you buy a fixer-upper and want to update it right away, renovation loans can help bridge the gap.
  
  
• Preparing for sale – Strategic improvements can help your home sell faster and for a higher price in a competitive market.

Renovation loans are most useful when the project aligns with your long-term goals and adds measurable value to your home.

How to Qualify for a Renovation Loan

Before you dive into your home improvement plans, it’s important to know what lenders look for. Approval isn’t guaranteed, and each lender has their own set of requirements. Meeting these criteria will improve your chances of securing the right loan.

Standard requirements to qualify for a renovation loan include:

• Stable income – Lenders want proof you can manage monthly repayments, usually through payslips or tax returns.
  
  
• Good credit history – A solid credit score (typically above 620) shows you're reliable with debt and boosts your approval odds.
  
  
• Sufficient home equity – For secured loans, you’ll often need at least 20% equity in your home to borrow against.
  
  
• Acceptable Loan-to-Value Ratio (LVR) – Most lenders prefer an LVR below 80% to avoid lenders mortgage insurance.
  
  
• Detailed renovation plans – Be prepared to submit quotes, building permits, architectural drawings, and a breakdown of costs.
  
  
• Property valuation – The lender may assess the current and projected market value of your home post-renovation.
  
  
• Council approvals and zoning compliance – For major works, proof of council or building approvals is usually required.
  
  
• Good debt-to-income ratio – Lenders assess how much debt you’re already carrying compared to your income.

Meeting these requirements not only speeds up the process but also gives you access to better interest rates and loan terms.

Steps to Apply for a Renovation Loan

Applying for a renovation loan may seem complex, but it becomes much easier when broken down into a few key steps.

Step 1: Get Pre-Approved

Start by applying for pre-approval. This provides a clear understanding of your borrowing limit, enabling you to plan within your budget effectively. The lender will assess your income, debt, property value, and credit score. 

Make sure your documents are in order, including payslips, loan statements, and details about your savings account or redraw facility.

Step 2: Estimate Costs and Plan Your Project

Get written estimates from builders or tradies for all planned works. Include everything: materials, labour, permits, alternative accommodation if needed, and even small extras like takeaway meals during the build. 

Budget a contingency amount, typically 10–15%, in case costs increase. Include any energy-efficient upgrades if applying for green loans or sustainability rebates.

Step 3: Submit Application and Documentation

Once you’ve chosen a lender or mortgage broker, submit your application along with supporting documents. These include the renovation plans, cost estimates, builder quotes, council approvals, and any relevant building permits. 

The lender will also conduct a property valuation to assess the current market value and potential post-renovation value. This helps determine your eligible loan amount and whether your LVR is acceptable.

Step 4: Final Approval and Loan Disbursement

Once your loan is approved, the funds are either released as a lump sum or distributed in progress payments aligned with the builder’s schedule. Some renovation or construction finance options offer interest-only repayments during the construction phase to ease cash flow pressure. 

After the project is completed, your loan shifts to regular repayments based on the agreed terms. Always review the comparison rate and make sure it suits your budget long-term.

Planning a Home Renovation? LM Edge Makes Financing Simple.  Whether it’s a kitchen reno or full home extension, LM Edge helps you choose the right loan type, avoid pitfalls, and fast-track approvals. Speak with our mortgage brokers on the Gold Coast today at 07 4721 4772. 

FAQs

Can I use a personal loan for a home renovation?

Yes, especially for small jobs. Personal loans offer fast approval but usually come with higher interest rates and shorter loan terms.

Are interest-only repayments available during the renovation?

Yes. Many construction and renovation loans offer interest-only repayments during the project to ease cash flow.

Will I need council permits for home renovations?

Yes, most home renovations in Queensland require council permits, especially if you’re making structural changes, altering plumbing, or building extensions. Rules vary depending on your local area. For accurate information, check directly with your local council:

• Gold Coast residents: Visit the City of Gold Coast – Building and Renovating page.
  
  
• Townsville residents: Visit the Townsville City Council – Building and Renovating page.

Always confirm what approvals you need before starting work to avoid fines or delays.

How much equity do I need to access a home equity loan?

Typically, lenders want you to have at least 20% equity in your property after the renovation.

Can I refinance my home loan to pay for renovations?

Absolutely. Cash-out refinancing is a common option to fund renovation projects using your existing home loan.

Which loan is best for home renovation?

The best loan depends on the size and type of renovation. For major projects, a construction loan or home loan top-up is ideal. For smaller upgrades, a personal loan or line of credit may work better.

Which bank is best for a home renovation loan?

Several Australian banks and lenders offer competitive renovation loan options, including ANZ, CommBank, and NAB. The best choice depends on your financial situation, loan amount, and required features like redraw or offset facilities.

How can mortgage brokers help with renovation loans?

Experienced mortgage brokers, such as LM Edge, can help compare different lenders, negotiate better rates, and help you find a loan that matches your renovation goals. They also guide you through paperwork and ensure you meet lender requirements, saving you time and stress.

Final Thoughts

Renovation loans can be the key to unlocking your home's full potential, whether you're planning a kitchen upgrade, structural repairs, or a full extension. With the right loan, you can improve your living space and increase your property’s value without putting a strain on your finances. 

If you're unsure where to start or which loan option fits your goals, the expert mortgage brokers at LM Edge are here to help. Serving both Townsville and the Gold Coast, they’ll guide you through the renovation loan process from start to finish. 

Ready to explore your options? Call us at 07 4721 4772 and book a free consultation with our brokers today.