A LT E R N AT I V E L I V I N G F I N A N C E
Financing a granny flat, tiny home or kit home.
your starter guide
Whether you’re expanding the family’s footprint, creating an Airbnb income stream or
finally claiming your own space, kit homes and modular dwellings open up a world of possibilities. But not every lender plays by the same rulebook.
Who this guide is for
- Parents adding space for grandparents, or for adult children who want their own living area and aren’t ready to leave
- Homeowners exploring extra living space or rental income, short or long term
Why it's not "just a mortgage"
- Asset classification. Banks may treat your purchase as real estate, a construction loan or chattel-style finance, each with its own conditions.
- Staged payments. Many modular builds release funds at factory milestones, so deposit timing needs to match the builder’s drawdown schedule.
- Site-prep costs. Council approvals, site works and delivery fees add up fast if they’re not budgeted.
Tip: document every line item up front and price in a buffer. Clear numbers avoid bill shock and hidden surprises later.
The three financing scenarios
Depending on your purpose and equity position, you’ll land in one of three scenarios:
Scenario |
Example |
Outcome & key points |
| Stay under 80%LVR | Property $1,000,000 · mortgage$500,000 · new lending $200,000 · final loan $700,000 (70% LVR) | Standard rates, easiest approval, no LMI. Best option when the equity is there. |
| Use the improved value to stay under 80% | Property $1,000,000 · mortgage$700,000 · new lending $200,000 · post-works value $1,200,000 · final loan $900,000 (~80% LVR) | Needs an as-if-complete valuation and usually a construction loan structure. Good when today’s equity is short but the project adds value. |
|
Exceed 80% LVR |
Property $1,000,000 · mortgage$700,000 · new lending $200,000 · final loan $900,000 (90% LVR) | LMI applies and usually a higher rate, with stricter criteria. Use only when you must borrow beyond what equity allows. |
The four purpose types
Asset type |
Key features |
Financing quirks |
| Renovations | Add-ons to an existing dwelling | Construction loan vs owner funds |
| Granny flats | Permanent addition | Can combine with the existing mortgage |
| Tiny homes | Compact footprint, high mobility | Often classed as chattel, not real estate |
| Modular / kit homes | Factory-built sections | Staged drawdown schedules |
Things worth knowing before you start
- Most lenders only release construction funds against invoices as works complete, once the home is fixed on site. But policy is moving: a small number of lenders have recently begun releasing funds during the factory build stage for modular and kit homes, before the home ever reaches the land. For a prefab project, that difference completely changes your cash flow, and it makes lender choice the single biggest decisionVacant land can carry loan amount and LVR restrictions with some lenders
- High-yield rental income (like multiple Airbnb cabins) may be capped or unacceptable with some lenders, and usually needs 1–2 years of history
- Ask which lender will assess your existing equity most favourably. It varies more than you’d expect