With todays rising construction and land costs, and peoples desire to move into more mature neighbourhoods, many home buyers who are purchasing homes in the St. John's and surrounding markets are opting to buy an existing home. Very few of these homes are ever "perfect" in the purchasers eyes and more often than not, they want to make changes to personalize their new homes.
One of the biggest mistakes a home buyer can make is to buy a home and then embark on a renovation rampage using their monthly cash flow to improve the home.
Although the "Purchase + Improvement" mortgage (shown in the video above) has been around for many years, the vast majority of home buyers still don't know that you can get all (or at least MOST) of these renovations included in your mortgage when buying your home: even if you're only able to put 5% down on the house. It also, DOES NOT increase your interest rate OR length of amortization.
When opting to do your own renos after your purchase, it doesn't take long for a trip to the Home Depot to become a weekly (or daily) occurrence when you get into renovations and the $200 here and the $300 there can add up to a fairly large sum over a couple of years of constant improvement.
Over the years, I've seen many times where the purchaser takes possession of their new digs, starts the slow updating/reno process only to have many of them back in my office 2-3 years later wondering if they can refinance because they've amassed significant debt while renovating their new home.
Unfortunately, the new rules and regulations that have been implemented over the last few years, coupled with slower house pricing increases, has made it very difficult to extract any of the equity from the home until you've paid down the mortgage over 20% of the balance and/or you're locked into a mortgage product that can cost thousands of dollars to get out (That was never on the glossy brochure, I assure you!)
Seeing a $10-$20k on a credit card or line of credit is not at all uncommon. While it's good that you've added the value to the house, you've created a significant liability for themselves as that same $20k added to the purchase price to do the renos when you bought the property, would have cost you only $41 bi-weekly. (That's not a typo!).
Now, on top of the mortgage payment, these happy(?) homeowners are paying $500-600 per month on the line of credit that is often 3-4% higher than their mortgage is, or if you're putting it all on your credit card at 19.9% it can mean you're paying an extra $600 per month just to meet the minimum payments, (on top of your new mortgage payment) which means you'll spend thousands more than you would have ever saved if you had selected to include the renovations with the mortgage. Needless to say, it doesn't take long to become overwhelmed by these financial obligations that can add unnecessary stress to your life.
Properly structuring your purchase and aligning your intentions with your chosen Real Estate / Mortgage Professionals can save a you a lot of time, money and headache when purchasing.
What would you rather? A $1600 a month mortgage payment +getting everything completed within a month or two, OR a $1500 a month mortgage payment + taking on the task of slowly updating your home over several years, all the while watching that line of credit balance creep up...and up...to a $200 minimum payment, $300....$400...$500.....
I think you know the right answer here.
And, when it doubt, ask questions and let the professionals help, and please share our content if you think this information could help save one of your friends/family from this trap!
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