Fixer Upper: Right Fit or Money Pit?

As I am a Kingston Realtor who likes to help people leave what I call the rental treadmill and become home owners I tend to deal with both lower priced homes  and homes that are known as "fixer-uppers” I am sure a lot of the people I deal with watch the television shows where a less than ideal home is transformed from a frog to a prince; that really rough house is now a perfect dream home. However those transformations are done by professionals, and if you are not a builder or contractor you have to realize that there is a lot of time, energy and especially money involved in the transformation. Be prepared or that dream home can be more like Tom Hanks film “The Money Pit”

Sometimes the only way you can get into your desired neighbourhood is to buy a home that needs work at a discounted price and turn it in to the home you want. One possible way of course is,if you and the home qualify. to get a Purchase Plus Improvement Mortgage. Now I am not a Mortgage Broker, though I do have a couple of trusted ones links one my web page, and in this case you add the cost of the renovations on to the mortgage; this allows you to make the renovation expense part of the mortgage so you can benefit from the low interest rates and make only one payment;rather than getting a separate loan from the bank which may well be at a higher rate and add another payment monthly into your budget. As great as that sounds you normally have to supply the broker/lender with a quote and possibly a renovation contract. As this will be part of the financing condition of your purchase offer, and time is of the essence in all real estate deals you will need to have this done several days before the removal date of said condition, to allow time for the lender to process it. The insurer (CHMC, or one of the others) may need an appraisal of the property as well before they will insure the mortgage. So it is not as simple as it seems, especially with the older homes. Here is a link from Gemworth on the mortgage plus and a summary from Fred . Contact myself or him for any questions 

link to the Genworth website for qualifying rules on this type of mortgage.

In summary here is the process for this mortgage in order,

1.  Find a home to purchase

2.  Make and obtain an accepted purchase and sale agreement with the seller of the home

3.  Decide what improvements you want to make

4.  Get quotes for all the improvements you want to make to the home within 120 days of the closing date.

5.  Submit those quotes to me to send with application for Mortgage approval

6.  Get lenders approved appraiser to home to do full appraisal and give the lender the "As Is" value and the "As Completed" value based on quotes you submitted

7.  Waive financing conditions on your purchase agreement once approval has come back from lender and all mortgage documents have been reviewed and signed and all back up documents lender requests have been submitted.

8.  Move in day to home - 120 Day clock starts to have all improvements completed.

9.  Improvements are completed, call me to get lenders appraiser back to see all improvements. (all within 120 days period)

10.  Appraiser tells lender all improvements are completed as per original quotes submitted

11.  Lender tells Lawyer to release improvement funds to you!

 If you can not get that type of funding, and you are not a builder contractor and need to do it yourself then the costs can be quite substantial. The home inspection will give you/us some idea on whether the work is just cosmetic in nature, and that is all it needs the the expenses might make the purchase great deal. However if it is more than that, and the home requires things like a new roof, heating, plumbing and electrical upgrades, new windows and especially structural work then the costs can be quite prohibitive. Here is a link to Ontario Contractors to give you an idea of material costs for the renovations Labour costs are also quite high in Ontario, and if you attempt the work yourself then you run the risk of not doing the work to code, then when you eventually decide to sell it might not pass a home inspection for the new buyers. To top all that off remember that if you are doing the work yourself, or even have builders do it while you live in the home you will have to put of with weeks or even months of noise and dust..

I am not however  saying a fixer upper is a bad idea. If you are not a builder/renovator, (or don't have a sales representative working for you), the keys to remember  especially if you are thinking of flipping after renovations are you want a building with good "bones" in a good school district with a low crime rate which needs mostly cosmetic work and not major repairs. It should also cost quite a bit less than other homes in the area as you need time, money and other resources plus  the ability to imagine the home when finished to your satisfaction

Blog Archives