Tag Archives: renovation mortgages

A Place Where Women Connect

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I am frequently entertained by the musing of @crunchycarpets on Twitter. We banter back and forth sharing a giggle and some intellectual property. Then one day she invited me to be interviewed for her website Wet Coast Women. I was excited about the opportunity to share my ideas about mortgages.

Honestly, I am passionate about helping women understand what it is they need to know about building a firm financial foundation and that includes knowing their way around securing mortgage financing.

Wet Coast Women was created by Kerry Sauriol of Crunchy Carpets ‘fame.’ The idea behind the site is simple..a place for all the women bloggers to mix, meet and promote their own sites and places of work and creativity.

Check out her site and read the article she posted after I answered her great questions.

Wet Coast Women

Happy Spring!

Karen Boies
Mortgage Planner
The Mortgage Centre-City Wide
604—726-9550
Karen@mortgagecentrebc.com

“The content and opinions expressed are solely the expressions of the writer. They do not represent the views or opinions of Mortgage Centre Canada and The Mortgage Centre – City Wide. Neither Mortgage Centre Canada nor The Mortgage Centre – City Wide warrant the accuracy of what is presented.”

Guarantor or not?

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I recently had the opportunity to work with a client who really wanted to take the step to buy her own condo instead of paying off her landlord’s mortgage. She had completed the application process, then after checking her credit rating I found out she had previously declared bankruptcy.  

That prior bankruptcy adversely affects her ability to get a mortgage on her own today. She has a good explanation for the bankruptcy. She suffered a life threatening illness and did not have a job where she was paid disability benefits.  While she recovered from the illness, she did not have an income and could not pay her debts. At the time she was younger and did not understand the ongoing impact declaring bankruptcy would have on her ability to obtain mortgage financing.   Today, she is healthy and has an established good paying career/job and pays her credit card off each month and on time.

Because of her prior bankruptcy the mortgage lender requested a guarantor. Luckily her parents were more than happy to help out and they were great candidates to be guarantors.

I thought a quick blog on the role of guarantor would be helpful.

A guarantor is a person who promises the lender they will repay a debt if the principal borrower should default on the mortgage repayment commitment (fails to pay).  A guarantor will be requested by the lender, if the principal mortgage applicant is unable to qualify for financing on their own. Examples of when this could happen are insufficient employment history or a history of poor debt repayment.

The guarantor does become part of the mortgage application and approval process. They will have to disclose their assets, liabilities, income and a credit check is done.  Then the lender looks as the complete picture of the applicant and their guarantor.

Once the application is approved, the guarantor will have to sign the mortgage documents including the mortgage commitment, confirming their obligation to the lender that they will be responsible to pay this mortgage, should their daughter fail to do so.   

The guarantor should obtain “independent legal advice” from a lawyer who is not part of the real estate transaction so they know what their responsibilities are should the primary debtor default on the mortgage repayment.  The lender (creditor) has no rights against the guarantor until the primary debtor defaults on the mortgage payments. Should the primary applicant miss one payment, the lender could enforce the guarantee and take action to have them pay the mortgage payments.

My client has sufficient income to support the mortgage on her own. Once she demonstrates at least 12 months of paying the mortgage payments on time and keeps her credit history in excellent condition, the lender will review the file and consider removing the guarantor.

I am happy to be the one to help you through the home buying and mortgage planning process.  When you or someone you care about, is buying a home, call me 604-726-9550! I want to help and make this a positive experience for all my clients.

If you have any mortgage related questions, please call me or email me at Karen@mortgagecentrebc.com

Karen Boies Mortgage Planner

What NOT to do AFTER your mortgage has been approved and BEFORE it funds

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Generally speaking real estate buyers will include a condition “subject to financing” when buying a home.  Once the significant lender conditions have been met (such as confirmation of your ongoing employment, income and your down payment) I will provide you with the lenders mortgage commitment and a letter confirmation of the approved mortgage financing.  You can go ahead and remove the subjects on your offer to purchase, if you wish.  Once you do this you are buying that home. Therefore, your financial situation should not change significantly before the completion/closing day when the mortgage funds.  Or the money might not be there!

It is very important to remember that the lender reserves the right to review all applicant’s financial status right before closing on your mortgage.   (They can verify your debt status by pulling a new credit bureau report)   If there is a substantial change in your financial status, the lender could refuse to fund the mortgage. This would normally only happen if you could no longer “qualify” for the mortgage based on the debt servicing ratios they rely on.

I recommend you AVOID the following once you have bought a home and are waiting for the mortgage to fund:

  • Do not quit your current job
  • Do not reduce your income (go from full time to part time, take a lower paying job with the same company)
  • Do not go out and buy all the new furniture and appliances for your new home and put it on a “do not pay for a year account”
  • Do not enter into a new lease for that car you “have to have”
  • Do not rack up credit card debt
  • Do not co-sign a loan or mortgage for anyone else
  • Do not stop paying your current debts or pay late (including the current mortgage on your existing home)
  • Do not spend the money you saved for your down payment and closing costs

I specialize in working with First Time Home Buyers and New to Canada purchasers because I love to educate and support them through the home buying and financing process.  

If you or someone you care about is in the market to buy a home, please contact me @ 604-726-9550.  I will guide you so that you can easily determine which mortgage financing option  will work best for your investment decision.

Purchase Plus Improvements Mortgage

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I have received a few calls from my mortgage clients who are out there looking for their ideal home. They have found a home that will require renovations to bring it up to the standard they want. They want to know what their options are?

There is an insured mortgage option called “Purchase Plus Improvements”.

This is how it works, in part :
For example, if you purchase a home for $320,000 and want to do $30,000 worth of renovations, CMHC will insure a mortgage based on 95% of the “as improved” value. In other words, with a down payment of 5% CMHC will insure a mortgage of $332,500.00. ($320,000 purchase price+$30,000 renovations x95%)
The key for this to work is that the cost of the renovations has to be reflected in the “as improved” value of the house. In this example, the Insurer would have to agree that the house would have a value of at least $350,000 after the $30,000 worth of renovations is completed.

The insured loan will be based on the lower of either the purchase price plus the actual cost of improvements or the “as improved” market value.

The Steps
When you have decided to make an offer on a home, make sure that offer has a “subject to financing” condition. We need to make sure a CMHC “Purchase Plus Improvements” mortgage will be approved. Ensure you have longer than normal subject removal, because there are additional steps required in this process. Since the offer will be conditional on arranging this type of financing you are not at risk in the event that CMHC feels that the cost of the proposed renovations are not fully reflected in the “as improved” value.

Next, have a qualified contractor put together a written description and a cost estimate for the proposed renovations.
The following information needs to be prepared by the contractor to be submitted along with your mortgage application to the lender:
1. Descriptions of the work
2. Types of materials being installed with applicable quantities (ie. 250 sq ft wood flooring)
3. Total Cost of all work (including applicable taxes)

Bring the written contractor’s estimate along with the “Offer to Purchase” to me.
Once the mortgage plus improvements has been approved by the lender and the insurer, you can remove your subjects on the offer to purchase.

When do you get the renovation funds?
When planning this type of purchase you will need to find other options to fund the renovations, until they are completed. On the date of closing (you now own the home) the lender only releases the funds for the purchase of the home and not the additional money you need to do the renovations.

When the upgrades are completed, and inspected, the funds are released to you.

Conventional Mortgage
If you have more than 20% to put down (conventional mortgage) you might want to consider putting less down (getting a larger mortgage or an insured mortgage) then use the extra funds from your own resources to pay for the renovations.

We could also look at whether there is sufficient equity for you to qualify for a Home Equity Line of Credit, which you would then use to pay for the home renovations.
This is a brief overview of a purchase plus improvement mortgage. If you are considering buying a home that needs renovations, contact me 604-726-9550. I will guide you through the process to help you determine which option is going to work best for you.

Enjoy your day.  Thank you for reading my blog.
Karen Boies