To many Australians, transportable homes and granny flats are the answer to attain homeownership. These properties are relatively affordable and easier to build. With so many designs to choose from, prefab dwellings are slowly becoming indistinguishable from traditionally constructed houses.

Furthermore, a granny flat makes a promising investment. Although it owes its name to the practice of accommodating extended family members, this piece of real estate has become a viable rental property. It can be conveniently erected on any vacant land, be it on your backyard or a lot away from your primary residence.

To fund your granny flat construction project, here are the best options you should consider:

1. Tap First Home Owner Grant (FHOG)

If you’re a first-time home buyer, take advantage of the FHOG to top up your deposit. Introduced in 2000, the requirements of this scheme vary among states and territories. For example, Queensland offers a one-off grant worth up to $20,000 to Australian citizens or permanent residents who are at least 18 years old.

A high-quality granny flat costs about $80,000 to $150,000 to build. As a typical construction loan lender can let you borrow at least 95% of the completed property’s value, the FHOG can help you cover the remaining 5% more easily. If you can pay 20% upfront with your savings, you can even avoid paying for Lenders Mortgage Insurance, which covers the lender in case you default on the loan.

Guarantor smiling for a picture2. Use a Guarantor

Taking out a guarantor loan eliminates the need for a deposit. A lender can let you borrower up to 100% of the completed granny flat’s value or more. Two securities will be used for a guarantor loan: your granny flat and the property your guarantor, which is usually your or your spouse’s parent, provides. If your income is insufficient, your guarantor can also use his or her income to satisfy your lender’s loan requirements.

To reduce the exposure of your guarantor to your home loan, you may ask the lender to limit the guarantee. This way, your guarantor only becomes liable for a portion of your loan.

Although no deposit is necessary for a guarantee loan, you may need to present proof of genuine savings equivalent to 5% of the property value. The purpose of this is to show that you, as the borrower, is financially capable to manage payment.

3. Treat Your House as an ATM

If you have a property already and are planning to build a granny flat, you can cash out some equity built in your primary residence. This can be your option if your property’s value has risen over time and you have brought down your mortgage balance significantly.

Although a cash out can be a convenient source of funds to build a granny flat for investment purposes, a home equity loan isn’t without risks. Understand the dangers of borrowing against the equity in your primary residence to avoid losing both of your properties.

Whatever your reason for constructing a granny flat, exercise your due diligence to choose the soundest route to fund your project. If you do it right, it can help you not only get into the property market but also grow your wealth passively.