Finding your dream home is an exhilarating experience, but what if the property you’ve fallen in love with requires a few upgrades or renovations? While this might seem like a roadblock, there’s a solution that allows you to finance both the purchase price and the cost of improvements in a single mortgage. Enter the purchase plus improvements mortgage—a game-changer for aspiring homeowners looking to turn their dream home into a reality. In this blog post, I’ll dive into the details of a purchase plus improvements mortgage, exploring its benefits, eligibility criteria, and the step-by-step process to help you navigate this financing option.

What is a Purchase Plus Improvements Mortgage?

A purchase plus improvements mortgage is a specialized type of mortgage that combines the purchase price of a property with the funds needed for renovations or upgrades. Instead of taking out a separate loan or using personal savings to finance the improvements, this mortgage allows you to incorporate those costs into your overall mortgage amount. It provides a convenient and affordable way to transform a fixer-upper into your dream home while keeping your monthly mortgage payments manageable.

Benefits of a Purchase Plus Improvements Mortgage:

Finance renovations with your mortgage: By bundling the purchase price and renovation costs into a single mortgage, you avoid the need for a separate loan or draining your savings. This approach simplifies the process and provides a more efficient way to fund your home improvements.

Lower interest rates: Mortgages generally offer lower interest rates compared to personal loans or lines of credit. By financing your renovations with a purchase plus improvements mortgage, you can take advantage of these favorable rates, potentially saving you a significant amount of money in the long run.

Increased property value: Renovating your home can boost its value, allowing you to build equity and potentially realize a higher return on investment when you decide to sell in the future. Whether it’s a new kitchen, bathroom upgrades, or energy-efficient improvements, you can create a more attractive and desirable property.

Eligibility Criteria for a Purchase Plus Improvements Mortgage:

While eligibility requirements can vary between lenders, here are some common factors considered:

Loan-to-value ratio (LTV): Lenders typically set a maximum LTV ratio, which represents the mortgage amount as a percentage of the property’s appraised value. For purchase plus improvements mortgages, this percentage is calculated based on the projected value of the property after renovations are completed.

Detailed renovation plans: You’ll need to provide a detailed scope of work, including cost estimates, for the planned improvements. Lenders will assess the feasibility and value that these renovations will bring to the property.

Qualified contractors: Lenders often require you to work with licensed contractors for the renovations. This ensures that the work meets building codes and maintains the value and integrity of the property.

Step-by-Step Process:

Determine your renovation goals: Identify the improvements you want to make in your dream home. Create a clear vision of what you want to achieve and estimate the associated costs.

Consult with a mortgage professional: Reach out to a mortgage professional or broker who specializes in purchase plus improvements mortgages. They will help you understand the requirements, guide you through the process, and assist with selecting the right lender.

Obtain pre-approval: Just like a traditional mortgage, obtaining pre-approval is an essential step. It will give you a clear understanding of the budget you have to work with and strengthen your negotiating power.

Develop a detailed renovation plan: Work with qualified contractors to develop a detailed scope of work and cost estimates for the improvements. Ensure that the renovations align with your budget and the lender’s guidelines.

Apply for the mortgage: Submit your mortgage application, including the renovation plans and cost estimates, to the lender. Provide any additional documentation required, such as income verification, credit history, and property details.

Mortgage approval and funding: Once your application is approved, the lender will provide the necessary funds for the property purchase and renovations. The renovation funds are typically held in a separate account and released as the work progresses.

Commence renovations: With the mortgage funds available, you can now start the renovation process. Work closely with your contractor to ensure that the project stays on track and within budget.

Conclusion:

A purchase plus improvements mortgage opens up a world of possibilities for aspiring homeowners who have found their dream property but need to make renovations or upgrades. By combining the purchase price and renovation costs into a single mortgage, you can streamline the financing process, benefit from lower interest rates, and increase the value of your property.

Contact me at any time to discuss this type of mortgage, or any other mortgage questions.

As a side note, I am also a licensed realtor, so if you are interested in selling or purchasing a property, I would be happy to work with you.

When you apply for a mortgage in Canada, the mortgage agent or broker may perform either a soft or hard credit check, depending on the circumstances.

Typically, when you first approach a mortgage agent or broker, they will start by asking you some basic questions about your financial situation to determine if you are eligible for a mortgage. At this stage, they may perform a soft credit check to get a general idea of your credit history and creditworthiness. This type of credit check does not impact your credit score, and is used primarily for informational purposes.

If you decide to proceed with a mortgage application, the mortgage agent or broker will typically perform a hard credit check as part of the application process. This type of credit check may impact your credit score, as it is an indication that you are actively seeking credit. However, the impact is usually minor and temporary, and should not significantly impact your credit score over the long term.

It’s important to note that when you apply for a mortgage, you may have multiple lenders or brokers perform hard credit checks on your credit report. While multiple inquiries can impact your credit score, credit bureaus typically understand that mortgage applications involve multiple inquiries and will often treat them as a single inquiry if they occur within a short period of time. This is known as “rate shopping” and is designed to help borrowers find the best mortgage rate without negatively impacting their credit score.

In summary, mortgage agents or brokers may perform both soft and hard credit checks during the mortgage application process in Canada. Soft credit checks are typically used for preliminary information gathering, while hard credit checks are used as part of the mortgage application process itself.  For more information about how I can help you with your mortgage needs, contact me anytime.

There are many factors to consider when applying for a mortgage, and it’s important to avoid common mistakes that can hinder your ability to secure a loan or affect your financial situation in the long term. Here are some of the most common mistakes to avoid when applying for a mortgage in Canada, along with tips on how to avoid them.

Not Checking Your Credit Score.

Your credit score is one of the most important factors in determining your ability to secure a mortgage in Canada. Before you apply for a mortgage, it’s essential to check your credit score and address any issues or discrepancies that may negatively impact your ability to secure a loan. Ensure your credit report is accurate and up-to-date.

Not Getting Pre-Approved.

Getting pre-approved for a mortgage can help you determine how much you can afford and give you an idea of the mortgage interest rates available to you. Without a pre-approval when purchasing real estate, you risk making offers on properties that are out of your price range, and may end up losing out on the home you want.

Focusing Only on Interest Rates.

While interest rates are an important factor in your mortgage, they’re not the only factor. Make sure to consider other factors such as mortgage terms, prepayment options, and penalties for breaking your mortgage contract.

Taking on Too Much Debt.

Lenders will consider your debt-to-income ratio when deciding whether to approve your mortgage application. Taking on too much debt before applying for a mortgage can negatively impact your debt-to-income ratio and your ability to secure a loan.

Not Saving Enough for a Down Payment.

While it’s possible to secure a mortgage with a small down payment, saving for a larger down payment can help you qualify for better interest rates, reduce your monthly mortgage payments, and save you money in the long run. Aim to save at least 20% of the purchase price for a down payment, if possible.

Not Working with a Mortgage Professional.

Navigating the mortgage application process can be challenging, but working with a mortgage professional can help you avoid common mistakes and ensure that you’re getting the best mortgage option for your needs. A mortgage professional can help you navigate the application process, and can provide valuable advice on how to improve your credit score, save for a down payment, and more.

Applying for a mortgage can be a complex and intimidating process, but by avoiding common mistakes and working with a mortgage professional, you can navigate the process with confidence and secure the mortgage you need to buy your dream home in Canada.

If you’re considering buying a home in Canada, working with a mortgage professional can provide valuable benefits and help you secure the best possible mortgage option for your needs. Here are some reasons why you should consider using a mortgage professional in Canada:

Access to a Wide Range of Mortgage Options.

A mortgage professional has access to a variety of mortgage options from multiple lenders, including banks, credit unions, and private lenders. This allows us to compare rates and terms to find the best mortgage option for your specific financial situation and goals.

Expertise and Advice.

A mortgage professional can provide expert advice and guidance throughout the mortgage application process. They can help you understand the various mortgage options available to you, answer your questions, and provide valuable insights into the current real estate market.  You likely only deal with mortgages once every 3-5 years, we deal with them everyday.

Convenience and Time-Saving.

Applying for a mortgage can be a time-consuming process, and working with a mortgage professional can save you time and effort. They can help you gather the necessary documentation, complete the application process, and follow up with lenders on your behalf, saving you valuable time and stress.

Help with Credit Improvement.

If you have a low credit score or other credit issues, a mortgage professional can provide advice on how to improve your credit score and address any credit issues that may negatively impact your ability to secure a mortgage. This can help you qualify for better mortgage rates and terms, and save you money in the long run.

Negotiation and Advocacy.

A mortgage professional can act as your advocate and negotiate on your behalf to secure the best possible mortgage rates and terms. They can also help you navigate any issues or challenges that arise during the mortgage application process.

In summary, working with a mortgage professional in Canada can provide valuable benefits, including access to a wide range of mortgage options, expert advice, time-saving convenience, help with credit improvement, and negotiation and advocacy. By working with a mortgage professional, you can navigate the mortgage application process with confidence and secure the best possible mortgage option for your needs.

Please contact me for all your mortgage needs.  Remember, my services are at no cost to you in most circumstances.

Interest rates are a key factor in determining the cost of borrowing money for a mortgage. In Canada, interest rates are set by the Bank of Canada, and they can have a significant impact on a borrower’s mortgage payments and home affordability. Here’s a breakdown of how interest rates work and how they can affect borrowers in Canada.

How Interest Rates Work.

Interest rates are the cost of borrowing money. When you take out a mortgage, the lender will charge you interest on the amount you borrow. The interest rate is expressed as a percentage, and it represents the amount you’ll pay in addition to the principal balance of the loan. For example, if you have a $300,000 mortgage with a 3% interest rate, you’ll pay $9,000 per year in interest.

Interest rates are set by the Bank of Canada, which is responsible for maintaining the stability and growth of the Canadian economy. The Bank of Canada sets a target for the overnight lending rate, which is the interest rate that banks use to borrow money from each other. Banks then set their own prime rates based on the overnight lending rate. These prime rates are used to determine the interest rates that borrowers pay on their mortgages.

How Interest Rates Affect Borrowers.

Interest rates can have a significant impact on a borrower’s mortgage payments and home affordability. When interest rates are low, borrowing money is less expensive, which can make it easier for people to buy homes. Low interest rates can also make it easier for homeowners to refinance their mortgages or take out home equity loans.

On the other hand, when interest rates are high, borrowing money is more expensive, which can make it harder for people to afford homes. High interest rates can also make it more expensive for homeowners to refinance their mortgages or take out home equity loans. In addition, high interest rates can lead to higher monthly mortgage payments, which can strain a borrower’s budget and limit their homebuying options.

Be Informed and Well Advised.

Overall, interest rates play a significant role in the Canadian housing market, and they can have a major impact on a borrower’s ability to afford a home. By staying informed about current interest rates and working with a trusted lender or mortgage professional, borrowers can make informed decisions about their home financing options. It’s important to consider interest rates when budgeting for a home and to be prepared for potential changes in interest rates over time.

Buying a home for the first time can be an exciting, yet daunting experience. There are many things to consider, from finding the right property to securing a mortgage. Here are some tips for first-time homebuyers to help make the process as smooth as possible.

Get your finances in order.

Before you start looking for a home, it’s important to know what you can afford. Take a close look at your finances and determine what you can comfortably afford in terms of a down payment, monthly mortgage payments, and other expenses associated with homeownership.

Work with a real estate agent.

A good real estate agent can be an invaluable resource for first-time homebuyers. They can help you navigate the complex real estate market, find properties that meet your needs and budget, and negotiate the best deal possible.

Shop around for a mortgage.

A mortgage is a major financial commitment, so it’s important to shop around to find the best possible terms. Look for a lender that offers competitive interest rates, reasonable fees, and flexible repayment terms that fit your budget.

Get pre-approved for a mortgage with your mortgage agent.

Using a mortgage agent to secure financing is the best place to start.  Remember, a mortgage agent has access to over 70 different lenders, from the major banks to private individual mortgages, and all this service is at no charge to you for most mortgages!  Getting pre-approved for a mortgage before you start looking for a home can give you a clear idea of how much you can afford to spend. This can help you avoid the disappointment of falling in love with a property that’s out of your price range.

Consider all the costs of homeownership.

When budgeting for homeownership, it’s important to consider all the costs associated with owning a home. These include property taxes, homeowner’s insurance, maintenance and repairs, and possibly condominium fees. Be sure to factor these costs into your budget so you can make an informed decision about what you can afford.

Think about your future plans.

When looking for a home, it’s important to think about your future plans. Will you be starting a family or changing jobs in the near future? These factors can influence the type of property you should be looking for and the location you choose.

Don’t rush the process.

Buying a home is a major decision, so it’s important not to rush the process. Take your time to explore different properties, and don’t be afraid to ask questions or seek advice from a real estate agent or other professionals.

In summary, buying a home for the first time can be an exciting, yet overwhelming experience. By following these tips, you can make the process as smooth and stress-free as possible, and find the right property for your needs and budget.

For more information or any questions, please feel free to contact me to start a conversation.

There has been some talk lately in the news about trigger rates. I am going to explain what
they are and how they can affect you.

What are trigger rates…

We are currently facing rising interest rates (although hopefully we are approaching the peak in 2023).  If you have a variable-rate mortgage you might be getting close to your trigger rate.  What does that mean?  As the interest rate rises, your payment on your variable-rate mortgage may not be covering the interest accrued each month.  Basically, your payment is only covering part of your interest payment, and nothing is going down on the principal portion of your mortgage.  This excess interest is called “deferred interest” and is added to the principal each month.  This is “negative amortization” and crates a situation where you actually owe more on your mortgage each month instead of paying it down.

What happens when I reach the trigger point…

Your individual mortgage will define what you must do if you reach your trigger point.
Generally, though, you will have 4 options when this happens:

• Increase your amortization. Spreading the mortgage over 25 instead of 20, for
  example, will lower the interest portion of the payment and put you back into
  positive amortization
• Ask you lender to switch you to a fixed mortgage. This will help you avoid the trigger
  point.
• Increase your payment. For many this is the easiest solution, if the increased
  payment is within your monthly budget.
• Make a lump-sum payment on your mortgage, which will go directly on the principal
  and thereby reducing the amount of interest each month. Most mortgages allow up
  to 15% of the original mortgage amount each year as a lump-sum payment. So, for
  example, if your original mortgage was $400,000, each year you could make up to a
  $60,000 lump-sum payment. This is not an option for everyone, but may be a good
  use of extra cash if it’s on hand.

If you are concerned about your current mortgage, and trigger rates, or for any other mortgage
questions, please contact me for a no obligation discussion!

The Government of Canada has created a program to help first-time home buyers with the purchase of a home.  It is called the First-Time Home Buyers Incentive.

In a nutshell, the government is willing to give the purchaser 5-10 percent of the purchase value of the property as a down payment.  In return, the government basically retains a 5-10% stake in the property.  This means if the value of the property increases, so does the repayment amount by that same percentage (to a maximum of 8% per year, if it increases more than 8%, the extra goes to the homeowner).  If the value decreases, so does the amount owed back to the government by the same percentage (also to a maximum of 8% per year).

What is the advantage…

The advantage of the program is that it allows the homeowner to decrease the size of their mortgage by this amount which may allow them to qualify for the mortgage.

Am I considered a first-time homebuyer…

This is actually a bit complicated, however, if you or your spouse (married or common law) have owned a home or one of you has lived in a home the other has owned in the past four years, you likely do not meet the requirements. But if you are buying solely and have never owned a home anywhere in the world, or you and your spouse are buying and have never owned a home anywhere in the world, you will qualify as a first-time home buyer.

Am I otherwise eligible…

To be eligible, you must match the following additional criteria:

• Your total qualifying income does not exceed $120,000 ($150,000 if home is in Toronto, Vancouver, or Victoria)
• Your total mortgage amount does not exceed 4 times your qualifying income (4.5 times if you are in Toronto, Vancouver, or Victoria)
• You are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
• You meet the minimum down payment requirements, using savings, RRSP funds, or a non-repayable financial gift from a relative
• Your first mortgage must be greater than 80% of the value of the property and is subject to loan insurance premium. Therefore, it must be eligible for Canada Guaranty, CMHC or Sagen mortgage insurance.

Eligible Properties…

The subject property must match the following criteria, and the type of home will dictate the amount of the incentive:

• New construction (5 or 10%)
• Existing home (5%)
• New or existing mobile/manufactured home (5%)
• Single family homes
• Semi-detached homes
• Duplex
• Triplex
• Fourplex (4 units is the maximum the property can have)
• Town houses
• Condominium units
• Mobile homes
• Must be a full-time owner-occupied property. Can not be a cottage or investment property.

The incentive is kind of like a second mortgage on your home. You can apply for the incentive through your mortgage broker and lender, who will submit the package for you.  To learn more about this program, or for any other mortgage questions, please feel free to contact me. And good luck with the house hunting!

Selling your current home and buying a new one can be very difficult timing wise, especially nowadays with bank delays and other factors sometimes pushing a closing date a day or more past the original date.  One way to lessen that stress is to close on your new house a week or more before the closing date of the sale of your current house.  But… you need the money from the sale as a down payment for the new house.  That is where bridge financing comes in.

What is a bridge loan…

A bridge loan is a lending product most lenders have that allow you to bridge the gap between the purchase of your new home, and the sale of the old home.  The amount of the loan is up to the amount of money that you will be using from the sale of your current home towards the down payment of your new home.  For example, you sell your current home for $500,000, and you have a mortgage of $200,000.  After you pay out the mortgage, you have $300,000 cash.  This $300,000 is being used as the down payment of your new $800,000 home.  The bridge loan amount available is $300,000 and this would cover the down payment on your new home while you await the sale of your current home.

Advantages of a bridge loan…

There are several advantages to the bridge loan.  If the sale of your new home is delayed, that is OK as you don’t have to move out the same day, so you have some leeway.  If your sale of your current home doesn’t close on time, it is OK, you have already purchased your new loan and are bridging the gap.  No need to have the sale fund your purchase on the same day.

The other big advantage is you have some time to do some work on the new house before you must move in.  Perhaps you want to paint some rooms or replace the flooring in the dining room.  You have a few days to do this work without trying to live around all the boxes.  I have done this a couple of times and it is a huge advantage.  We also had a move where the vendors left the house fairly dirty, so we had some time to clean up the empty house before moving in (even though that was annoying!).

What does a bridge loan cost…

There is a cost to the bridge loan, but how much is peace of mind worth?  Bridge loans are calculated on a daily basis, and usually a certain percentage above bank prime.  For example, one bank charges an admin fee of $250 for the bridge loan, then daily interest based on 2% above their prime rate, calculated daily.  As a simple calculation, on the same $300,000 bridge loan above: Current prime rate is 5.95%, plus two gives a rate of 7.95%.  Interest on $300,000 for a year at 7.95% is $23,850.  You divide that by 365 days, the daily interest amount would be $65.34.  So, for one week, the bridge loan would cost you $250 admin fee, plus $65.34 X 7 days for a total of roughly $700.  Many feel this is a reasonable fee to pay, for the added benefits.

Contact me…

Please contact me if you have any questions about bridge loans, and any other mortgage, refinancing questions.  I would be happy to help.

Often when purchasing a home, purchasers will get a pre-approval on a mortgage.  Typically, these pre-approvals last for 60, 90 or even 120 days.

What is a pre-approval?

A pre-approval involves a mortgage broker collecting all of the documents required to apply for a mortgage, whether with a major bank, or an alternative lender.  The broker would then carefully choose the most appropriate lender for the client, and submit the information to request a mortgage pre-approval.  The lender would analyse the application, and decide whether or not they wish to fund the mortgage.  If it is a mortgage they want to fund, they will send a letter “pre-approving” the mortgage.  This basically means the clients are approved for the mortgage, as long as it closes by the expiry date of the pre-approval.

Why would you do this?

There are many advantages, and no disadvantages, to getting pre-approved.  Here are a few of the most important reasons:

• The purchaser knows how much large a mortgage they can qualify for. This allows them to have a solid home purchase budget.  It prevents wasting time looking at homes that do not fit into their budget.
• The purchaser can then make a confident offer to purchase knowing that they will get the financing necessary to make the deal happen.
• In times of increasing interest rates, a fixed rate pre-approval guarantees the rate offered in the pre-approval for the time period stipulated.

Some important items to remember when working with a pre-approval:

• The lender has to approve the home purchased. This is most often a formality, but the home has to show enough value to warrant the mortgage amount.
• The purchase MUST CLOSE before the expiry date of the pre-approval. If closing is delayed, the lender may not honour the pre-approval.  A signed agreement of purchase and sale does not guarantee the rate if the closing is after the expiry date of the pre-approval.

Contact me for more information…

Pre-approval costs you nothing and can bring great peace of mind.  Please contact me if you would like to discuss a mortgage pre-approval or for any other mortgage questions.