I love this time of year! The days are longer, the weather is warmer and the sun is shining – well, when we are not having those April showers.
This time of year always gets me up and moving, starting my spring cleaning indoors and I always catch myself brainstorming on what my next spring project around my home will be.
Currently, I have lived in my home almost 2 years and with this booming real estate market this year, I have seen the houses on my street and in my neighbourhood sky rocket in price. For me, my intention is not to move for a few more years but while this market is hot, there is money to be accessed from my property that will help me to make those spring renovation projects a possibility!
While living in your current home, do you find yourself thinking about how you can improve your home? and have you ever wondered how you can obtain the money to complete the renovation projects you have been thinking of doing?
If your home isn’t exactly how you want it and you have been wanting to add your own personal touch, here is a list of the top 10 most common spring renovations projects:
- Adding a new or updated kitchen
- Developing the basement for more living space
- Updating or replacing the carpeting or maybe adding hardwood
- Adding a media room or “man cave”
- A new bathroom with maybe a jetted tub – your personal sanctuary
- A new roof
- A more efficient central air or furnace system
- Adding new siding, eaves or fascia
- Replacing or updating doors and windows
- Adding a swimming pool or major landscaping
So how can we find money to do these upgrades to your home?…..
- First, you will need at least 20% equity in your home based on its current value.
- Before the mortgage financing is arranged, written quotes are obtained from licensed contractors or suppliers for the repairs and/or the improvements to be done to the home.
- The application for mortgage financing is requested and is made for 80% of the current value plus 80% of the cost to complete the improvements.
- The lender will “hold-back” on closing the “improvement” portion of the mortgage until the work has been completed and inspected, normally within 30 to 60 days of closing.
- Once the work has been completed, the lender will advance the balance of the funds to either you or your contractors.
What does this mean?
- Let me give you an example with 20% equity on a property with a value of $400,000:
Current Property Value: $400,000 x 80% = $ 320,000
Cost of improvements: $ 40,000 x 80% = $ 32,000
Total New Mortgage*: $440,000 x 80% = $ 352,000
- An application is made for a total mortgage in the amount of $352,000, which represents 80% of the improved value of your property.
- Now of course you may already have an existing mortgage or secured line of credit on the property and this will either be included in the new mortgage (blended) or paid out completely. It will depend on what type of existing financing you have on the property on what your options would be. Let’s assume you have an existing mortgage of say $320,000 which is 80% of the value of the property.
- On closing of your new mortgage amount of $352,000 it will replace your existing $320,000 mortgage leaving a total of $32,000 in this case for renovations. This $32,000 will be held in trust at your lawyers and you will receive it as soon as the work is completed. This is known as a “hold back”. The lender of course doesn’t want you to have access to the funds, and then actually not end up using them for the renovations!
- The mortgage is arranged and then the contractor or yourself, complete the improvements as soon as possible and then the lender advances the hold-back of $32,000, and you pay the additional 20% of the cost of the improvements ($8,000) and the $32,000 owed to the contractor or you directly, can be paid as per the original quote for the work.
- Everyone is a winner! You are happy because you got $32,000 of improvements done to the home with a cash outlay of only $8,000! With current interest rates still historically low, this is much cheaper than adding the cost to a credit card or line of credit – let the equity in your home pay for the renovations and of course, the lender is happy because they now have a mortgage on an improved home!!!
Being an expert in this unique type of refinance, I can answer all your questions. You can contact me at 519-760-4391 or firstname.lastname@example.org