Last month, the article “Can’t find the Perfect Property in Your Price Range” was published on our blog. We outlined the purchase plus improvements program as a way to buy and renovate a property at the same time. If you are looking to buy a new home, but can’t find something you love, this article is certainly worth a read! But what if you don’t want to move? What if you like the place you’re in, but it could use a few upgrades? Well, here are some ways you can use your home equity so you might be able to stay just a little bit longer!
Introducing the mortgage refinance, and the refinance plus improvements. Both products allow you to leverage your home equity for home improvements.
Is your mortgage balance is less than 80 per cent of your property’s value? Then, assuming you qualify (given the latest changes to mortgage qualification), you can access the equity built up in your home to that 80 per cent level. Lenders will typically ask what the funds are going to be used for. However, you won’t have to prove anything after the fact. You should be able to access up to $200,000. Assuming you have the equity, a refinance is a really great way to access funds for various reasons. Here are just a few:
- Renovate your house
- Consolidate your high-interest debts
- Help your children pay for education
- Top up your investments
- Access money for a down payment on a vacation property
- Start a new business (just don’t quit your day job)
… Or any combination of the above
But what happens if you want to do some renovations to your property, but your mortgage balance is more than 80 per cent of your home’s value? That’s where the refinance-plus-improvements comes in.
Guidelines will vary from lender to lender. In general, refinance-plus-improvements will allow you to access up to 80 per cent of your property’s existing value, plus the cost of the renovations. Most lenders will consider 10 per cent of the initial value of the home to be included for renovations. So when you take the existing value of your home and add the suggested cost of the renovations, this becomes the improved value. Your improved home value then determines your mortgage, instead of your existing value.
However, the catch here is that the renovations have to increase the value of your home accordingly. The lender will also want to ensure that the renovations have been completed. The value of the property has to increase before they will actually let you have access to the money. So, although the cost of the renovations can be added to the mortgage, it’s your responsibility to pay for the renovations up front. Once an appraisal substantiates the improved value, then the lawyer’s trust account will release the funds.
Securing a purchase-plus-improvements is certainly a little more tricky than executing on a refinance. But if you don’t have enough equity saved up, this might just be the product that allows you to access your home equity in order to increase the value of your home, and give you a nicer home to live in. Win win.
If you have any questions about either a refinance or a refinance plus improvements, and what each of these would look like given your financial situation, please don’t hesitate to contact me anytime. I’d love to work with you!