Knock Down Rebuild Finance Guide
Financing a knock down rebuild is different from a standard home loan. This guide explains your options — from construction loans to using your existing equity.
A knock down rebuild requires a different financing approach to buying an established home. Understanding your options helps you fund the project efficiently.
Construction Loans
A construction loan is the most common way to finance a knock down rebuild. Key features:
- Progressive drawdowns — funds are released in stages (slab, frame, lock-up, fit-out, completion)
- Interest-only during construction — you only pay interest on drawn funds, keeping costs down during the build
- Demolition included — many lenders allow demolition costs to be included in the loan
- Converts to standard mortgage — after construction, the loan converts to a standard principal-and-interest mortgage
Using Your Existing Equity
If you have equity in your current property, you can use it to fund the KDR:
- Equity release — borrow against the current value of your land + existing home (before demolition)
- Cross-collateralisation — use equity from another property to fund the build
- Refinance — refinance your existing mortgage to access funds for the project
How Much Can You Borrow?
Lenders typically assess:
- Land value — your block's value without the existing home
- Construction cost — the total build contract price
- Loan-to-value ratio (LVR) — most lenders allow up to 80% LVR for construction loans
- Serviceability — your ability to repay the loan during and after construction
Demolition Financing
Demolition costs ($15,000–$40,000) can usually be included in your construction loan. The funds are released as the first progress payment before construction begins.
Additional Costs to Budget For
- Rent during construction (10–14 months)
- Storage for furniture and belongings
- Moving costs (two moves)
- Contingency — 10–15% of construction cost for unexpected issues
- Landscaping — often not included in the build contract
Tips for KDR Finance
- Speak to a mortgage broker — they can find lenders experienced with KDR
- Get pre-approval before starting — know your budget before committing
- Include all costs — demolition, construction, rent, storage, contingency
- Choose a builder with fixed-price contracts — avoid cost-plus arrangements
- Understand progress payments — know when each payment is due
Frequently Asked Questions
Yes, most lenders offer construction loans specifically for knock down rebuild projects. These loans release funds progressively as the build progresses, and many allow demolition costs to be included. Speak to a mortgage broker experienced with KDR finance.
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