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How to Finance Renovations on your New Home

If you need to renovate your new home, there are innovative mortgage programs that can help you out. As seen in REW.ca

With house prices continually rising, sometimes the only home you can afford is a home that needs a bit of updating or needs renovations. But traditional financing can sometimes make these types of home unaffordable. That’s because you first have to come up with a down payment to qualify for a mortgage for the purchase price. Then as soon as you take possession, you have to qualify for some kind of home improvement loan. Not only is it difficult to qualify for two separate loans at the same time, it also makes buying more expensive.

Fapartment-renovations-17899498ortunately, there are innovative programs from mortgage insurers such
as CMHC and Genworth that are designed for just this purpose. These programs helps qualified homebuyers make their new home just right for them, by making customized improvements, immediately after taking possession of their new home. All this is done with one manageable mortgage and with as little as 5 per cent down.

The improvements to be made under such programs can’t include structural changes to the home. Some of the improvements allowed include:

  • Updating or renovating kitchen
  • Updating or renovating bathrooms
  • New flooring
  • New paint
  • Finishing or renovating basement
  • New patio or deck
  • New energy windows/doors
  • Addition of garage, etc.

Some of the parameters of the program include:

  • As low as 5 per cent down payment (conditions apply)
  • Depending on the insurer, you can go up to 20 per cent of the purchase price with a maximum of $40,000 or 10 per cent of the as-improved value
  • Owner-occupied properties only
  • Down payment is based on the as-improved value
  • Other conditions apply

For example, the CMHC Improvements program lets qualified buyers borrow up to 10 per cent of the post-renovation value of a house and use that money to cover the cost of renovations.

Let’s say the house’s purchase price is $400,000 and the renovations you have in mind would increase its value by $40,000. That means the post-renovation value would be $440,000 so you could borrow $40,000 to cover the renovations.

Let’s See the Monthly Savings:

Straight mortgage with $40,000 line of credit:

  • Purchase price $400,000
  • Down payment $20,000
  • Improvements using line of credit $40,000
  • $1,773.51* mortgage + line of credit $316.67** per month
  • Total monthly payments: $2,090.17*

Purchase Plus Improvements:

  • Purchase price $440,000
  • Down payment $22,000
  • Total monthly payments $1,857.52*
  • Improved cash flow and lower interest costs
  • Living in dream home

renovations_page

To qualify, you have to provide a quote from a contractor or suppliers at the time of submitting the application to the lender. Once insurer (CMHC or Genworth) and your lender approve the renovation amount, it’s then added to your mortgage loan. However, you don’t receive the funds until the renovation is complete and has been appraised or inspected. This usually means you will need a short-term line of credit or come up with the funds ahead of time.

The best option is to work with a mortgage expert, such as myself, who has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

The good news is that Alisa Aragon from Your Mortgage Solutions Group has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

To see whether this type of program can help you affordably improve your new house into the home of your dreams, talk to a mortgage expert and we will provide you with a no-charge analysis of your needs and financial situation.

* Mortgage based on 5 per cent down payment with a fixed rate of 2.59 per cent, closed for five years and 25-year amortization
** Line of credit based on interest rate of 9.25 per cent interest payments only
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Maternity or paternity leave & your mortgage

Often the impending arrival of a new addition gives one pause to re-evaluate their current environment. We often decide that bigger cars and bigger living quarters are in order and ideally try to take care of these things prior to the big day, or very soon thereafter.

a8f108fd-f92f-459b-952b-fe9cdf7f9148.format_jpeg.inline_yesThere are a few key points around mortgages and new additions.

  1. The monthly payment on a leased or financed car can have a limiting effect on mortgage qualifications. Housing first, vehicles second.
  2. Being on maternity or paternity leave while shopping for a home is not a showstopper. The key is a job letter that clearly defines a return to work date, i.e., you have a full-time income position to return to.
  3. Being on maternity or paternity leave, or even having a new car payment in your life will not affect your ability to renew your mortgage with your current lender, although it can make moving to a new lender more difficult.

Before adding a car payment, or before listing you current residence for sale, give me a call.

After all, it’s not about the mortgage.It’s about developing a short and long term strategy that are customized for each individual client. My strategies include the best financing and mortgage with the most favorable terms and rates to suite your needs.