Purchase a home and customize it!
With house prices remaining flat or declining in most parts of the country (other than Vancouver, Toronto and their surrounding areas), I have seen an increase in “Purchase Plus Improvement” mortgages. This is where you purchase or refinance a home and need funds to renovate it, or in mortgage broker speak: money for improvements. Allowing you to customize your home to what you need.
With it being more difficult to sell, people are turning back to their current home and looking for opportunities to make it what they want or need. This is called a Refinance Plus Improvements. It is actually a pretty cool opportunity to turn all of that equity that you worked hard to create and then taking advantage of that to increase your homes value even further. The main reason is to customize it to what your current needs and desires are. This looks different for everyone, such as a new kitchen, an addition, maybe a new garage, new windows, etc.
For homebuyers, the new mortgage rules implemented October 17, 2016 has made their purchase power 20% less than days before that rule change. This is quite the swing when you consider a $300,000+ house price. If you could afford 300k October 16, 2016, it would now be 240k as of today. This will cause some to lower their home expectations or maybe the ideal neighbourhood. Which is why I am seeing a new mortgage opportunity for homebuyers in the Purchase Plus Improvement program. You can buy the home you like 80% of, and improve the 20% you do not like.
For example: if you were to find a house listed for $350,000 and you were pre-approved for $380,000. You can borrow an additional $30,000 to your maximum budget, to invest in the home making it perfect. You get the same great mortgage rate, terms, and conditions as any other mortgage.
For most, this is all the info you need to say, “Perfect, that is all I needed to know. I’m ready to make an offer on a home and leave all the boring details to my mortgage broker”. But, for those that need more details and want to know the inner workings of this type of mortgage…keep reading!
Here are the steps to purchase + improve your home with a mortgage:
- Get pre-approved so you know your price point…call me or apply online if you haven’t already!
- Find an awesome home, in a great neighbourhood, in your price point. You determine that it needs some updating and renovations.
- Get your offer accepted after some negotiating with your realtor. While you are doing that, or just after, please rush your contractor(s) into the home to view what work needs to be done.
- Send me your Purchase contract; your MLS feature sheet, AND your renovation quote from your contractor on the work to be done. The quote needs to be up front.
- You get approved from the bank/lender (WOOHOO!!!) and we meet in person or on the phone to sign your good news approval. This is where I will pause to explain how the mortgage works. You will get money from the bank to give to seller in combination with your down payment based on your possession day. Your money for renovations is approved and waiting to be delivered based on the completion of improvements. In other words, you have to complete the work first BEFORE you get any renovation dollars and cents from the bank. Therefore, make sure your contractor can float the costs until completion, or have a plan in place to cover the costs until the bank can reimburse you.
- Once you have completed the work as shown on your renovation quote, you will call my team and I. We will order an inspection through an appraiser to inspect the work confirming it is 100% complete. There is typically a cost to the client for this inspection (approx $200).
- This is the magic day, where the money is released to you and your bank account is replenished!
Random, yet important things to know:
- Your down payment is based on the entire project. In this scenario, the home was $350,000 and the renovations were $30,000. Total cost is 380,000. You would need a minimum down payment of 5% on the $380,000.
- Timeline: Most banks would love to see this complete in 120 days (4 months). Some will allow more depending on the project and season.
- Amount of money to borrow? Most banks will cap the renovation/improvement to 10% of the home price. Although some banks have no limit at all, as long as you can qualify. Therefore you could purchase a home for 200,000 and do a 100,000 renovation! Don’t worry, they would give you more than 120 days for that type of reno. 🙂
I believe this will be a magic product for 2017 and beyond as we see financing rules change the way we acquire and keep homes. If you think this is a good fit and something that opens the door for you, contact me here. Please know, there will be no high-pressure sales tactics if you contact me just to inquire and chat about your specific situation and hypotheticals. That is what my team and I are here for.
Happy house hunting, and happy renovating!!