Hope you are all having a great summer. Even as the available housing inventory has expanded considerably, home sales trends across the Greater Toronto Area (GTA) remain sluggish. For those of you who are currently house hunting or have zeroed in on a few homes that you like, renovation costs associated with moving into a new home can quickly escalate if you do not plan ahead for how you will go about paying for them.
If the house you have purchased is a bit of a fixer upper, and definitely needs renovation before it is livable, it is a good idea to consider renovation mortgage financing to pay for these costs.
What is renovation mortgage financing?
You are a first-time homebuyer; have saved up for a down payment, gotten pre-approved for a mortgage, and have found your dream home. Your almost dream home, that is. It still needs some work—repairs and renovations—to make it your dream home. When you sign up for the mortgage to pay for his dream home, check with your lender if they can also add renovation costs to your mortgage.
This will allow you to budget for renovations ahead of time and at very low interest rates, compared with opting for a line of credit or taking out a loan at a later stage. It will also save you from taking on the additional stress of worrying about financing a major renovation project in addition to the considerable amount you have already spent on the down payment, and associated home purchase closing costs.
How can you get one as a first-time homebuyer?
- Sometimes also referred to as a purchase plus improvement mortgage, you should have the requisite information ready before you request your lender to check your eligibility for the same. Below are some key things to consider.
- Make a detailed list of all the renovations needed in your new home.
- Figure out if all the repairs/renovations you are considering are urgent.
- If some can be put off for a later date (preferably for six months to a year), consider excluding them for now.
- Buying a new home, moving, and closing costs can add up quickly so it is important to be discerning in this case.
- Get advance quotes from licensed contractors for the renovations you want to do immediately.
- Calculate how much will the total renovations cost.
- Present this information to your lender for faster approval.
Renovation mortgage financing for existing homeowners
If you are already a homeowner, your property will require regular upkeep, repairs, and renovations to maintain its market value. For existing homeowners, refinancing your mortgage is a good option if you are unable to access other means of financial credit. If you are approved, a lender can let you borrow up to 80 percent of the appraised value of your home to pay of renovation costs.
Alternative avenues of financing
Depending on the amount you need to spend for renovations, the options can vary. These can include using a personal line of credit or a home equity line. If the upgrades are to make your home greener, there are several federal grants available under the Canada Greener Homes Affordability Program that you can apply for.
Additional Resources
Environmental incentives by province
ENERGY STAR® rebates and incentives
If you are planning to buy a home or sell your existing home this year and are wondering how to get started with renovating your property, do get in touch with RE/MAX Royal Team Sachdeva Realty for more information.
Have a good weekend!