How to get a loan to Finance a granny flat

Granny flats can be a great way to add some extra living areas to your property without major renovations. Here’s what you need to know when it comes to the costs and benefits of financing a granny flat.

A granny flat is generally considered as an independent living area located on the property of your home. It can be detached or attached to your home. When sourcing funds to finance a granny flat there are some options you can look into when getting a loan.

Using equity to finance your granny flat

If you have owned your property for a few years and are looking to expand through a granny flat, it is possible that you have built up enough home equity to finance this build. 

Your home equity is the difference between your property’s market value and the balance of your mortgage. Working with your broker, you can calculate the accessible equity you will have in your property and draw down on those funds in order to gain the appropriate finances to build a granny flat. 

Find out how to calculate your equity here or speak to your local broker to find the right option for you. 

Using Construction Loans

If your property does not have enough equity to finance the build of a granny flat, or you would like to explore other options, a construction loan may be a suitable option for you. A construction loan may involve refinancing your current loan to include the construction loan amount for the build of the granny flat. 

A construction loan works differently to a traditional home loan as the funds will be available in stages as progress payments to be made to the builder. 

How do construction loans work?

If you're thinking about building a granny flat, you may need a construction loan.

In this video, Emma explains how construction loans work and what makes them different from other types of home loans.

Watch our video to see if a construction loan is suitable for you.

Speak to your local Mortgage Choice Broker to find out what you can borrow and if a construction loan is right for you to build your granny flat.

How Much Does a Granny Flat Cost?

There are of course many variables involved when it comes to determining the costs of building a granny flat. The cast can vary depending on the size, builders used and whether you choose to construct a ‘flat pack’ granny flat or get a custom one designed and built. 

To fully understand how much a granny flat costs you will need to ensure that you are aware of what your quote from a builder includes as hidden costs such as plumbing and electrical need to be factored in. 

The estimated costs that can be expected to pay for a kit granny flat with a slab, plumbing and electricity included are the following1

  • $81,000 for a 38m2 granny flat
  • $95,000 for a 50m2 granny flat
  • $120,000 for a 71m2 granny flat

It is of course important to understand that a custom granny flat may cost more than these estimated and to do your own research to understand what features come with a kit granny flat and calculate any additional costs for extra features or upgrades you would like to include. 

Granny Flat as an Investment

Adding a granny flat to your property could be an affordable way to start or build your investment portfolio as it can be cheaper than buying a standalone investment property. 

Choosing to add a granny flat to your property can result in both long term and short term benefits from an investment point of view. For example by having an additional living space on your property you will now have the option to rent out the granny flat and therefore begin earning rental income. The rental income you receive will be based on the size of your granny flat and your location, however, this can become a steady source of additional income for you once the building is complete. 

Another benefit associated with granny flats is the additional value it can add to your home. If you do choose to sell your property in the future or access additional equity for an investment property or further home improvements, you will find that the addition of the granny flat to your property will likely add more value to property that outweighs the constructions. 

Council requirements by state

The construction of a granny flat is permitted in NSW needs to be certified by the local council or an accredited certifier. This can be done without a development application if the standards specified in the State Environmental Planning Poilicy (Affordable Rental Housing) 2009) are met.  

Some of the standard requirements to build a granny flat include2

  • To  be established in conjunction with another dwelling (you home). 
  • On the same lot of land as your home (and not an individual lot in a strata plan or community title scheme)
  • May be within, attached to, or separate from your home. 

To get your granny flat approved as complying development, you will need to complete your nominated accredited certifier or council’ approved complying development certificate (CDC) application form. This process can take up to 20 days to receive approval. In the case that your granny flat does not meet these requirements for complying development, you will need to lodge a full development application with your local council.

If you are looking to build a granny flat in Victoria certain conditions must be met. These conditions can vary between conunciles, however will be in relation to the building codes, regulations, planning permits and application process3. 

To understand the specific requirements involved in your council to build a granny flat you can find your local council here

In order to build a granny flat on your property in Queensland you will need to ensure that you meet the requirements outlined by the local council. In 2014, the Brisbane city council developed the Brisbane City Plan 20144. The CIty Plan applies to granny flats in residential zones and provides details on how to check planning approval and basic design requirements. 

In Queensland a granny flat can be a maximum of 80sqm in size and if it is for a member of your household it does not require council approval. If you would like to build a granny flat bigger than 80sqm or more than 20m from your main home then you will be required to lodge a development application. Other basic requirements that can be met with the construction of your granny flat without the need for council approval include: 

  • Maximum height and storeys includes 9.5m and two stories if the dwelling is built and complies with the following development codes - character residential (CR), low density residential (LDR), low-medium density residential (LMR1 & LMR2), rural (RU), emerging community (EC) and environmental management (EM).
  • Maximum height and storeys includes 11.5m and three stories if the dwelling is built and complies with the following development codes - medium density residential zone (MDR) and low-medium density residential zone (LMR3). 
  • One car parking space must be provided for both the granny flat and one for the main house. 

To determine whether you need to lodge an application with your council to build your granny flat, it is recommended by local councils to speak with a building certifier or consultant town planner. 

In order to build a granny flat in South Australia, you will need to seek council approval and ensure that the following basic requirements5 are met: 

  • A granny flat will only be considered when the site is a minimum of 1,000sqm in a sewered area of 1,200sqm in a non-sewered area
  • Maximum floor area of the granny flat is restricted to 72sqm.
  • The building should have an open floor plan with the only separate room being a bathroom. If you are looking to build a self-contained residence, the laundry is required to be integrated into the bathroom or the kitchen. If a separate room such as a bedroom is genuinely required for practical reasons, there should be a maximum of one.
  • The granny flat should not be internally accessible from another part of the overall building, unless under the main roof of your property. 
  • The granny flat should be connected to the same services as the main house. 
  • The granny flat should share the same driveway as the main house, but is permitted to have a separate car space. 
  • Appropriate parking and open space - minimum of 20sqm - should be provided. 

Whilst it is important to understand these requirements before proceeding with an application, each council may have their own specific requirements. Therefore the above list should be viewed as a guide, as all applications are considered on their individual merits and situations may vary. 

Basic requirements across Tasmania include, the maximum size of a granny flat is to be no more than 30% of the total area of the principal property and they can be rented to anyone6. 

Similarly to other states, Tasmania has no statewide policy on what you can and can't do when it comes to building a granny flat. Therefore the requirements will vary depending on your local council. 

When looking to build a granny flat in Western Australia there are many planning requirements to be met. These are outlined in the Residential Design Codes and advise on the minimum lot size, maximum floor area and parking requirements. These requirements can vary depending on your local council. 

If you are building a granny flat in WA, you will need to apply for building approval with your local council7. This is to ensure that the granny flat meets the safety (structural and fire), health, amenity and sustainability requirements of the Building Code of Australia (BCA). 

You will be able to understand the specific process for your situation to get building approval by speaking with the building approvals department at your council.  

Regulations for granny flats in the ACT are covered under the Planning and Development Regulation 2008. The basic requirements that you will need to ensure your granny flat adheres to are the following8:

  • Property must be a minimum size of 500sqm
  • Granny flat must be minimum size of 40sqm and a maximum of 90sqm
  • Compliant with the total plot ratio allowable for the block of land
  • Granny flat must be easily adaptable to suit the needs of people with disabilities as per the Australian Standard AS 4299 Adaptable Housing (Class C). In order to prove adaptability a floor plan of the granny flat will need to be submitted to council
  • The development needs to have a ‘water sensitive urban design’, therefore achieving a minimum 40% reduction in mains water consumption
  • Compatible with exterior building materials of existing buildings in the neighbourhood.
  • Compliant with setbacks
  • The granny flat should provide open space for tenants, with reasonable levels of privacy for adjoining residential blocks
  • The granny flat cannot obstruct pedestrian access
  • At least one car parking space to be provided. 

If your proposed granny flat meets the above criteria you are able to lodge your development application with your local council, where you will follow their process to get approval. 

In order to build a granny flat in the Northern Territory you will need to obtain a building approval by speaking with an NT registered building certifier. They will be able to assess the building application, issue building permits, undertake site inspections and issue occupancy certification on the completed build. 


In some cases in the NT, you may need to get a planning approval before an occupancy certification can be issued. However planning approval is not required if your granny flat meets the requirements for your local zone that are set under the NT Planning scheme 20209 in these areas:

  • Applicable overlays
  • The maximum floor area of the granny flat
  • Being under the building height limit
  • Minimum setbacks from neighbouring properties
  • Any parking and landscaping requirements
  • Requirements for power, water and sewerage or on-site waterwaste management. 

As each zone will have their own requirements in these areas it is important to understand what is applicable to you but finding the zone that applies to your land here.

How to Build a Granny Flat

As discussed above your granny flat’s costs can vary depending on how you choose to build it. The two main options that you can take when building a granny flat are purchasing a ‘flat pack’ kit or getting a custom one designed and built. 

If you choose to go with a kit home for your build, it is possible that there will be lower prices involved as you will not need to be concerned with the design process and the build may be less involved if you choose to make no further modifications. 

Choosing a custom granny flat can be a longer process as it will involve speaking with an architect or project manager to work on the designs and create the granny flat specifically for your space. There may additionally be a more involved building process as you will be able to work directly with your builder to ensure that the granny flat has the features you require and follows the designs that you helped create. Therefore you will be a part of the process in each step of the journey. 

It is of course important to understand each process when looking at building a granny flat to determine what is best for your situations. Speak to your local broker today to get a better understanding on what kind of granny flat would be suitable for your situation and the funds you may need to build it.


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