Show Me The Money

Being in the business of building homes doesn’t really put us in a position to give you financial advice. However, building/renovating a homes is typically the biggest purchase you will ever make and most of us don’t have that kind of cash saved to pay it all upfront. In order to sustain any building project, people need to get paid so you will need to determine the best way to finance your project. We have gathered some information and spoken to, mortgage specialist, Patty Hopper at VanCity, to help you determine what options you have.

What Can You Afford?
Before you visit any financial institutes/specialist, it’s best to determine your budget. If you are looking to get a mortgage, you will need to decide how much you can afford to spend on a monthly basis. Have a look at some of your recent bank statements and take the time to break down your monthly expenses versus your income to decide exactly how much you can manage. Choosing to be pre-approved for your mortgage before you start shopping is a good idea too. If you have champagne taste and a beer budget, this will help bring you into reality.

If you are looking to borrow money for an extensive home renovation or to build, you will also need to determine what you can afford. In most cases, a line of credit (LOC) is good option but there are various types . It is important to get an estimate from your builder/contractor and discuss their payment terms. Include a contingency fund in your budget as well.

Who Will “Show you the Money”?
If you are looking for a mortgage, you will need to decide if you want to work with a mortgage specialist or a mortgage broker. Brokers are licensed mortgage specialist with access to multiple lenders (typically smaller banks) and mortgage rates. They are paid by the lender providing the mortgage product and they negotiate with those lenders on your behalf. Larger financial institutions employ mortgage specialist who can offer you their own rates and products. These institutions can offer discounts on their posted mortgage rates; however, you are responsible for this negotiation. They also allow you to consolidate your services with a provider you have an ongoing relationship with.

As someone looking to borrow money to upgrade or expand their home, you will need to contact a financial institution (not a broker). It can be beneficial to contact the institution that currently holds your mortgage or other accounts. An existing relationship can mean better negotiating power for a lower interest rate. There is a type of lending known as a home equity line of credit that allows you to borrow at a lower rate based on money you have already payed back on your mortgage. VanCity calls this a Re-advanceable Mortgage in the the form of a line of credit, allowing you to pay your builder as required then adding the final amount spent to your existing mortgage.

What Do You Need to Borrow Money?
Whether you want a mortgage or line of credit, if you want to borrow money, you need to be able to prove you can pay it back. Some or all of the following documents may be required before you will be given approval:
-Income documents/pay stubs
-Notice of assessment (1-2 years)
-Proof of down payment (mortgage only)
-Build/renovation budget
-Home appraisal

When we asked Patty what she felt were her client’s biggest surprises, she told us her client’s are often very well educated in the process but there can be shock in the amount their mortgages or loans are pre-approved for. They can be disappointed or overwhelmed by what they are being offered. When real estate is hot, your home may be appraised for more than you imagined which leads to a larger line of credit. Regardless of the amount a bank is willing to lend you, you need to be honest with yourself and be comfortable with the payments that loan would be required.

To read more about what to consider before buying a home, click here.

To read about 5 reasons for a home addition, click here.

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Squamish: 604 892 7652




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