There is one sure fire way to avoid getting into bidding wars this spring and that is to buy a house that nobody else wants. No, it won’t be new and it definitely won't be shiny but do it correctly and you will stand to make thousands on your investment. It's clear that in 2018, buyers are ready to pay a premium for renovated character homes in our urban centres.
Renovations can be intimidating but they don't have to be. Along with the right designers, contractors and lenders, we can help walk you through every step. Today, with some help from Alex Grison, a renovation and builder mortgage specialist from CIBC, we will shed light on how you can go about financing your renovation with as little as 5% down.
A residential renovation/construction mortgage is required if the renovations are greater than 10% of the value of the home due to the amount of work required and the potential for liens.
CIBC operates under a 4 draw system with the potential for additional draws if required. They also work off of percentage complete vs completion points, so if some of your material does not arrive on time or is damaged on delivery, there is still the potential to receive funds from a progress draw. It is important that if you are to take on a project like this, that you deal with a construction financing specialist as they will be able to structure, check for cashflow shortfalls and provide greater insight around your financing solutions.
Acceptable Loan Purpose
- Purchase transactions up to 95% or refinances up to 80% of the value of the property
Eligible Properties
- Maximum four units with at least one unit occupied as the principal residence
- New construction or existing properties
The Process
- Step 1: Find a house or land (that's where we come in).
- Step 2: Get quotations for the work or home build that is require to be completed
- Step 3: CIBC will be able to apply for an approval on current value and as if complete value at the time of application
- Step 4: Take possession of your new home and start the major renovation project or new build. The work can be done by any contractor, builder, or yourself (if qualified to complete the work)
- Step 5: As the progress of the construction is taking place, you will require funds to pay your contractors/builder. When you are ready for the first initial trench of funds, the bank orders an inspection and a report is sent back to the bank. If enough work has been completed, the funds are advanced to your lawyer and your lawyer issues the draw funds to you directly. You control the payment to your contractor or builder.
- Step 6: Once the major renovations or build is 100% complete the mortgage is converted into a traditional mortgage which you have already been pre-qualified for prior to commencing the major renovation / construction project
Notes:
- During construction period, your payments are interest only.
- Your interest rate during construction is higher than your traditional mortgage (Keep in mind that this is for a short period of time). Once construction is 100% complete, your mortgage rate drops to that of a traditional mortgage.
- Example of cost of funds during construction on a monthly basis: (subject to interest rate changes)
- $200,000 drawn: $1061
- $300,000 drawn: $1592
- $400,000 drawn: $2122
- $500,000 drawn: $2653
- $600,000 drawn: $3182
If you have any further questions about a renovation/construction mortage, Alex can be contacted directly at:
Alex.Grison@cibc.com or 613-796-6568
To get started on your home search, feel free to contact us here!