Have you ever done a major renovation on your Halton & Hamilton home? If no, have you ever watched any of the home reno shows on TV? You may have heard of the "scope creep." This is when the renovations start and before long, the costs creep up or more problems arise than originally predicted. This can be a difficult obstacle to overcome and can be very stressful especially when funding is limited, so it’s very important to build contingencies into your financing plans right from the beginning. So if a surprise pops up, you are ready to take it on!
So, how are you going to actually pay for the reno now that you have decided to go through with it? When looking for financing options there are few available. The first and easiest to explain is…. CASH! If you have the money put away and can afford it, cash can be the best option. But most people may not have thousands of dollars just kicking around.
If you are buying a home, there is a really great program called Purchase Plus Improvements that can be a fantasic option. Basically, when you get approved for your mortgage, the lender will lend you a percentage of the value of the home and put it into your mortgage, so you can take the money to pay for the renovations. It can be an excellent option when buying. We would be happy to discuss and go over the details more with you. Just drop us a line or email us and we can explain it in more detail.
For those of you who already own your own home two of the most common options are the home equity loan and the home owner's line of credit. The home equity loan is based on the amount of equity that you have built up in your home. It is important to know that government regulations have changed on how much you can borrow, so be sure to talk to your lender or bank to find out what you may be available for. (It’s also important to know, you have to have equity in your home to be able to get this.) It is calculated by taking the value of your home and subtracting the amount left outstanding on the original mortgage. If you own your home outright, then the amount would be the home's value. As an example, if you have a home that is worth $450,000 and you still owe $310,000 then the equity available would be $140,000.
The other popular financing option is the home owner's line of credit. The loan is a bit more “open” than an equity loan. This is a popular option as it allows for a lot of room when considering costs. The loan operates much like a credit card, and usually with a variable interest rate. This is certainly the most flexible of the options and does not have a definite end date. The line of credit remains open for as long as you need it and do not close it out.
If you are looking for financing options for a home renovation, the best option is to talk to your banker or mortgage broker to see what is available. Keep in mind, there are other options available, these just happen to be the most common. It is important that you prioritize your needs and try to find a loan that is tailor made for your needs. Remember, in most cases, your home is going to be on the line as collateral so be sure to plan your payment schedule carefully and within what you can afford to pay. The last thing you want to do is become “house poor”. Make sure that you research all your options here and find what work s for you and for your budget.
If you would like to speak with one of our professional mortgage professionals about your available options, we can make sure you get the ball rolling and done correctly!
If you would like some ideas on what type of renovations to do to maximize the return on your investment, we can help you make some smart choices before you start!
We hope this information was helpful to all of the readers of our blog. There are many more great articles to come! Be sure to share with your friends and family!
The Premier Home Group
Ryan Smith & Lindsay Russell
Keller Williams Edge Realty, Brokerage
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