Many home buyers and existing home owners are deciding to get more bang for their buck by purchasing a home that needs some improvements. Whether you are renovating at the time you buy or waiting for a few years, there are financing options available.
For home buyers, you may want to consider a “purchase plus improvements” mortgage when renovating your home. Many lenders offer these even if you only have a 5% down payment. The lender will require proof of the work to be completed in renovating your home. They will add this quoted amount to the purchase price, deduct the down payment and determine your mortgage amount. If you are buying with less than a 20% down payment, insurance fees by CMHC or Genworth will be added to the mortgage. The lender and insurer will typically allow a maximum of 10% of the value of the home to a maximum of $40,000-$50,000. If it is going to cost much more for renovating your home a construction draw mortgage would be required.
At the time of completion on your purchase, the lender will fund the mortgage proceeds to the lawyer and condition a hold back for the renovation funds. You will have to use your own funds (or borrowed from family or your line of credit) for renovating your home. The remaining funds will be released by the lawyer upon proof (appraisal) confirming the work quoted has been completed. There is typically a 90 day period for work to be complete but this can be extended if required. Of course, during this time you are making mortgage payments on the full mortgage amount.
- Buy a home $500,000
- Renovate $ 50,000
- Down pay $110,000
- Mortgage $440,000
For existing home owners the same financing option for renovating your home is available. The one exception is your maximum mortgage amount for the existing mortgage and new funds for renovating your home can’t exceed 80% of the value of the home.
For a complete guide to renovating your home check out www.bcliving.ca
Thank you to my DLC colleague Pauline Tonkin for this article.