Considering finishing your basement for a home office? With remote work increasing, the need for a home office is greater than ever. Maybe your backyard has the potential for landscaping and modernization, or your kitchen needs a facelift. Homeowners always face the same question: How will you finance your home renovation? For those with poor credit, how will loan approval work to cover these costs?
Home renovation second mortgage loans tap into existing equity to cover necessary renovation costs efficiently. Poor credit borrowers can also look to private lenders (C lenders) to negotiate private mortgage loan options. A private renovation loan can cover home updates by accessing equity in your property.
Ontario Lending Options to Help “Fix” the Costs
Renovations can ultimately increase your home’s value. According to Sagen, 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
Investing $10,000 in kitchen upgrades can increase your home’s equity and market value upon appraisal. Yes, the initial upfront cost is there. However, the potential to increase the overall value of your property is very likely.
Lending Options for Homeowners with Poor Credit
In Ontario, lenders are classified into three broad categories:
- A Lenders: Major banks requiring exemplary credit, easy-to-calculate yearly income, sufficient financial assets, and a low debt ratio. They impose strict mortgage stress tests.
- B Lenders: Trust companies and credit unions. They are more lenient than A lenders but still require a credit score of at least 550, easy-to-calculate household income, and additional financial assets.
- C Lenders: Private lenders. They offer secured home renovation loans for those who do not qualify with A and B lenders. Private lenders consider all types of income, including investment, self-employed, contract-based, or freelance income.
Advantages of a Home Renovation Loan
Aside from paying off your first mortgage, investing in upgrades and renovations boosts your home’s overall value. Even if your credit is damaged, negotiating a home renovation loan is still possible. Do home renovations provide the homeowner with distinct advantages?
- Renovating key areas makes your home enjoyable and attractive to potential buyers when you list it for sale.
- Upgrades increase your home’s value, boosting approval chances for additional secondary home financing.
- Your home will be competitive when stacked against other properties in your area.
- Working from home can transform your space into a sanctuary, making it both enjoyable to work and live in.
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 bases home renovation secondary financing negotiations on a current property appraisal as a cornerstone criterion. Property location, comparables in the area, and its condition, including issues like water damage, are assessed meticulously.
When approving a private renovation loan, lenders assess the equity in your property as part of their evaluation. The overall Loan-to-Value (LTV) will be calculated based on the amount of equity built into 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% of the appraised value of your property).
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. Email ron@mortgagebrokerstore.com or call 416-499-2122.
