Purchase + Improvements Con't

Previously I explained this process but I wanted to re-emphasize some of the problems clients are encountering.

First of all, let’s say you find a home that suits most of your needs, except for an issue or two, such as a poor roof or furnace. You can ask the lender for money to finance this improvement. Do remember the improvement generally can’t exceed the value by more than 10% if CMHC approved, or 20% if GE Capital approved.

So what are my cautions?

1) If you notice some failing, you need to get a tradesperson in to quote the damage. This is very difficult if the financing period is too short. Be sure to communicate to your real estate agent that you want to investigate doing a purchase plus improvement so you may need extra time.

2) If the improvement exceeds 10%, then you need to know if your lender uses GE Capital. Not all lenders do. This is a great reason to see a broker agent who knows where to send a deal.

3) An improvement can add debt to you and you may not qualify. Know where you stand.

Hedge your bets. Use a knowledgeable broker agent who can guide you through this fantastic option.

So You Think You Want To Build?

If you are considering the possibility of building a new home, the initial discussion should conjure up incredible emotion.  First, think of the effort you will have to put into the design, construction, time and all the decisions you will have to make.  From personal experience, I know that building a home is a great challenge.  The following will describe three methods of how to go about building a home, and which is the best/easiest way to do so.

1. Progress Advance Process

This method assumes you have a contractor who owns the land and builds specific houses.  The contract between the builder and the purchaser establishes the final price.  Progress advance payments go to the builder in steps.  Step one is when the house is framed, the windows are installed and the roof is shingled.  The builder receives, after an appraisal and purchaser visits a lawyer, 35% less and a 10% hold back.  Steps two and three are similar to above, as the money is received after drywall is completed and then when the kitchen and cupboards, etc, are installed. This process is good for the builder because it establishes cash flow; however, not so great for the purchaser because there can be extra appraisal and legal costs.

2. Negotiated Deposit & Payment on Completion

On occasion, a builder is satisfied with a reasonable deposit up front and payment in full when the house is completed.  This is easier for the purchaser, provided the initial deposit isn’t too high.  As long as the construction process is fairly quick, this is also good for the builder.  There is no holdback after each step.  Purchaser saves appraisal and legal costs; therefore, this is a preferred method.

3. Do It Yourself

If you want to be your own contractor, there are two very important issues.  First, the purchaser must already own the land.  Owning land up front is very costly, and you cannot get a mortgage on just land.  If a parent, for instance, can lend you the money for the land, you can finance the building up to 95%, so when building is completed, the purchaser can repay the parent. (Please call for any clarification).  Second, before receiving approval, the lender determines the overall cost by getting an appraiser to value the land, blueprints, building supply list, and subcontractor quotes.  This establishes the value and the mortgage, less the client’s downpayment.  (Note: Not all lenders finance this type of mortgage, so see a broker agent for more details).

Overall, no matter which process you choose, you will invest so much time and effort into creating your new home, that this process becomes both exhausting and exhilarating. 

Technology: Not Always So Friendly in the Mortgage Biz

The longer I remain in the mortgage business, the more variety I see in the client’s coming forward.  The trend seems to be that older people use the banks because they are accustomed to their services.  Also, the older person typically thinks they know better.  Well, I am in that “older person” group, and when I first got into the mortgage business I soon found out that the bank was not meeting my needs.  I also realized how little I knew.  I wasn’t informed enough and did not realize how poorly my needs were being attended to until I began to learn the mortgage process myself, and the variety of options available to people.

Now, after many years of experience, I seem to see more young people in my office.  They arrive feeling they don’t know much about getting their first home and want lots of help; these are clients wise beyond their years.  This can be a tricky business wherein the explanation and presentation to a lender are essential.

One important note I want to express to these youthful clients’ is that the world of technology is not always so friendly.  Lenders and even mortgage brokers are actively involved in “apps” and using their websites to apply online for mortgages.  Not knowing the “rules of the game” can hurt.  I have even seen a client go against my advice, opting for a different lender.  The misinformed person then chose s product, not realizing they lost the freedom to pay down their mortgage and increase their payment – an extreme disadvantage.

I believe getting what you want and deserve needs expertise.  Contact a broker agent like me to best advise you of all your potential options.  My services are free to all clients: I represent you, not the bank.