It is hard to believe that we are almost halfway through summer. Certainly, with the prolonged pandemic, the sense of time is distorted. Like many Ontario homeowners, the time may have crept up and is forcing you to determine what needs to be done to your house to update and fix any nagging problems unaddressed during the height of the pandemic.
Perhaps you have been contemplating finishing off the basement to put in a home office. With more and more homeowners working from home and companies contemplating reducing in-office hours, the need for a home office is greater than ever. Perhaps your backyard has the potential to landscape and modernize. Your kitchen may also be in need of a facelift.
Regardless of what fixes and home renovations a homeowner may be contemplating there remains one common theme that can not be avoided. Just how will you finance a home renovation? For those homeowners that may have poor credit, the question also arises as to how will loan approval work to cover any home renovation costs?
By tapping into existing equity in your property, there are home renovation second mortgage loans that can cover the necessary cost involved. Poor credit borrowers can also look to private lenders (C lenders) to negotiate private mortgage loan options. A private home renovation loan can help to cover the expense of any updates and home improvements by also accessing available equity in your home.
Ontario Lending Options to Help “Fix” the Costs
There is no doubt that given the time and money, a renovation will ultimately increase the value of your home.
According to Genworth Canada, the area of your house that will give you the best investment return and eventually increase the appraised value of your property includes:
- The basement
- The Kitchen
- Any bathrooms
In other words, if you invest say 10,000 in renovation costs to upgrade your kitchen you will make back this amount in equity and more when your house is appraised for its current market value. Yes, the initial upfront cost is there, however, the potential to increase the overall value of your property is very likely.
For those homeowners that know the value of home renovations but may suffer from poor credit, lending options exist to provide the means to pay for any necessary renovations. In Ontario, the mortgage sector tends to classify lenders into three broad categories:
- A Lenders
- B Lenders
- C Lenders
The first category of lenders consists of the major banks. Bank mortgage loans require exemplary credit, a preference for easy-to-calculate yearly income, sufficient additional financial assets, and a low debt ratio. Lenders routinely put homeowners/borrowers through strict mortgage stress tests that have been tightened even further as of June 01, 2021.
The Second category of lenders consists of trust companies and credit unions. Although more lenient in terms of lending criteria than their A lender counterparts, these lenders do still require a credit score of at least 550 and prefer easy-to-calculate household income as well as any additional financial assets.
Private lenders make up the third category of C lenders. For those that may not have sufficient credit scores to qualify for home renovation loans from A and B lenders, private secured home renovation loans can be negotiated by an Ontario-based private lender.
At Mortgage Broker Store we can help negotiate a short-term home renovation loan directly or point you towards a suitable private lender in our network of private lenders throughout the Province. Beyond credit difficulties, private lenders will take into consideration all types of monthly income sources including investment income, self-employed, contract-based, or freelance income.
How Are Home Renovation Loans Calculated?
Just as in all second mortgage loan options, all lenders will be assessing the degree of equity in a homeowner’s property. To calculate home renovation loans a lender will also ask to see a current appraisal to determine the current value of the property.
A lenders will also be assessing current household income and overall debt ratio when calculating home renovation loan amounts.
A private lender will be using a current property appraisal as the cornerstone of the criteria when negotiating home renovation secondary financing. The location of your property, other comparable properties in your area, and the state of your property (including any ongoing issues such as water damage) will be assessed carefully.
When approving a private home renovation loan, a private lender will also be evaluating the degree of equity in your property. The overall Loan-to-Value (LTV) will be calculated based on the amount of equity built in your property vs the amount owing on your first mortgage. Generally, as with most second mortgage loans, a private lender will not be lending beyond 75% LTV (or up to 75 percent of the appraised value of your property.)
Advantages of a Home Renovation Loan
Along with paying off the first mortgage on your home, it is always advisable to keep up your property and invest in any upgrades and renovations to increase the overall value of your home. Even if your credit is damaged, negotiating a home renovation loan is still possible. Do home renovations provide the homeowner with distinct advantages?
- By renovating key areas of your property not only will your house be a pleasant place to live, but it will also be more attractive to potential home buyers when it comes time to put your house on the market.
- Upgrades will increase the overall value of your home which will increase the likelihood of being approved for further secondary home financing
- Your home will be competitive when stacked against other properties in your area
- If you continue to work from home, your home will be your sanctuary and be an enjoyable place to work and live in.
Mortgage Broker Store Can Negotiate Different Types of Second Mortgage Loan Options
With access to a broad network of well-established and experienced private lenders across Ontario, Mortgage Broker Store can connect an interested homeowner to private lenders to discuss various refinancing options. We will also be able to negotiate private financing directly, depending on your specific financial objectives. Poor credit and non-traditional income need not be a barrier to obtaining a bridge loan or any other loan to help pay off any pressing monthly liabilities. Don’t hesitate to contact us at your convenience to discuss the best options to suit your unique financial circumstances.