You’ve found your dream home, but the only problem is that it’s a dump! Fear not, homebuyer! There are many options available to help you finance the renovations, so you can stop dreaming and start living. One of the most popular options for new homebuyers is the renovation mortgage financing, where you assume the costs of the renovations into your mortgage.
You’re probably wondering – how does it work? Sometimes, you don’t even know everything that needs to be taken care of until you begin a large renovation project. According to the Canadian Mortgage and Housing Corporation:
CMHC Mortgage Loan Insurance can help you obtain financing for both the purchase of your home and the renovations — up to 95% of the value after renovations — with a minimum down payment of 5%.
Essentially, at the time you apply for your mortgage, you will also estimate all of the costs associated with your renovations and add those to the mortgage. For first-time homebuyers this can be an extremely smart option as they may not have enough saved up to purchase the house and then immediately take on a huge renovation project. However, whenever undertaking any renovation project, whether financed yourself or through a mortgage, you should always put aside some extra for the “unknown”. This might even just be upgraded appliances or furniture when the renovations are through, but having some money set aside is never a bad thing!
But, what if you already own a home and want to renovate?
Mortgage refinancing is an option that many look into if they do not want to obtain funds in other ways (lines of credit, loans, etc.). Mortgage refinancing takes into consideration how much left you owe on the house, and allows you to borrow up to 80% of the appraised value.
Refinancing your mortgage allows you to undertake the renovations, but spread the payment out over a longer period of time with generally less interest than a credit card or personal loan rates.
To find out what the eligibility criteria looks like, Genworth has created an information sheet highlighting many of the applicable scenarios. It is important to recognize that in order to qualify for renovation mortgage financing, the renovation cost must make sense based on the properties value or potential value.
Whether your undertaking renovation costs in your mortgage, or simply just looking to increase the ROI, it’s important to know what areas of your house are worth investing in. Understanding the best renovations for the greatest ROI will help you prioritize your to-do list. It’s also good to do some research and understand what types of remodelling mistakes can actually lower your homes value as well.
So the next time you walk into a home that needs work, don’t get scared off right away if you don’t have the funds readily available to renovate. Whether you use renovation mortgage financing or borrow against an existing mortgage, your dream home may be more achievable than you think.
Looking to enter the market, or understand the current value of your home? Contact a local RE/MAX Agent to help get you started.