So, you’ve decided to renovate your home, but you have no idea where to start. The good news is that there are hordes of Canadians in the same boat. The number of homeowners who jump into home renovation planning without any prior expertise is immense – and so is the number of mishaps that take place simply because homeowners didn’t have a prior plan in place. Renovating your home can cause significant regrets if you don’t prepare adequately beforehand. Expenses can increase overnight, and issues can pop up to make a renovation that the contractors promised would be “simple” anything but easy. Let’s take a look at some tips designed to help you plan your home renovation.
Managing the Renovation Process
To start with, plan on interviewing multiple contractors to get a set of bids. Even simple jobs can lead to wildly different cost estimates, depending on the contractor, and different contractors can develop different strategies to get the job done. When you’re talking about involving plumbers and electricians in the renovation, this can lead to some significant alterations to the home, especially if water lines may need rerouting. If you get multiple bids and the strategies seem significantly different, it’s worth talking to a trusted home improvement professional who isn’t involved in the bidding process to get the right answer before you sign a contract.
Also, before you get started, think about investing in a lockbox for your keys. Whether you are renovating a home in a different part of Canada where you reside, or already live in the home, or have a lengthy commute, a lockbox can be a smart idea. It’s likely that you will need to bring in a contractor to do at least some of the work, and if you work in an office – or just want to avoid having to be home at all hours to let workers in, attaching a lockbox or finding smart door hardware that lets workers (and other guests) in with a code can save you any number of headaches.
Choosing the Right Materials
If you’re renovating a home that you have not yet inhabited, don’t pick the light fixtures, carpet or paint colors until you’ve had some time to walk around inside the space and spend some time there. Such choices as carpet fibers, colors, and patterns are expensive to undo once you’ve placed the order. Matching the carpet with new paint via a Zoom call can lead to severe disappointment once the work is done and you walk into the room for the first time, because the natural light in the room can make colors look just different enough not to match. Once the new paint and carpet are installed, the light fixtures might not illuminate the room like you want, and if you’ve already invested in new fixtures, you’re looking at throwing good money after bad.
In general, finding materials involves striking a bargain between cost and quality. Consider choices on siding, for example. Natural stone is the most durable material you can choose, but it is also more costly. It can last over 100 years – but you don’t want to have to spend that whole time paying it off.
Also, consider whether the material suits the region where you plan to live. Wood siding has a classic look, but if you live in a humid part of the world, it won’t last long. Most of the Canadian climate zones aren’t hospitable to termites, so wood can make sense here more than it does, say, in the southeastern United States or the Caribbean.
Finally, take into account the availability of the material. Unique materials can be gorgeous to look at, but if they add weeks or months to the project timeline, they may not be worth it.
Preparing for Disruptions
Renovations that follow the projected timeline to perfection are as rare as the vaquita – a porpoise only found in the northwest corner of Mexico’s Gulf of California. Only 18 of these animals still exist on the planet, but they might even be more common than a perfectly punctual home renovation. The vast majority of home renovations go past their expected completion date. The most common causes of delays come with finding the new parts that you want. Maybe you’ve got your heart set on a particular vanity for your bathroom remodel, or there was one granite countertop that you realized you just had to have. Hiccups in the supply chain can turn delivery time on these items from a matter of days to a matter of weeks. Also (particularly when plumbing and electricity are involved), your contractors may find issues hidden beneath the floors and inside the walls that need remediation before your project can move toward completion. Those delays can add significant time to your renovation as well.
Surprises lurking within your home can add to renovation costs as well. You’re putting in a new walk-in shower, and you’ve priced the materials accurately, but when the contractors dig up the part of the closet floor that will be changed to the shower area, they find plumbing leaks beneath the ground. The good news is that this likely explains your high-water bills. The bad news is that now you have new repairs to make, new permits to take out and a new inspection to pass. All of this adds time – and money.
These disruptions are what make taking out construction mortgages such an important part of the process. If you’ve spent time building up equity in your home, then starting a second mortgage for the construction can make a lot of sense, and making sure that you have enough money taken out is an essential part of this element of your plan. Taking out the sort of renovation or construction mortgage Canada homeowners often select has several benefits:
- Pay only interest during the construction. If you took out a $250,000 loan on your equity and are paying 10% on it, but you’ve only drawn $35,000 at this point, you would only pay interest on what you’ve accessed, and you wouldn’t pay on principal at all at this point.
- Access flexible terms. Home renovation timelines can go through significant changes over the course of the project. Each borrower has a unique profile when it comes to the time when they need the money and when they can pay it back, so setting up the loan terms is a unique process for each borrower as well.
- Transition the note to a permanent mortgage if needed. If it looks like you need to refinance some or all of the principal into a conventional mortgage, you don’t have to go through another closing process, which means fewer costs and less paperwork.
It is true that the sort of reno and construction mortgage Canada and other countries commonly see involves a higher interest rate than some other forms of credit. However, the convenience of closing within a week or two, at least in some cases, comes with a cost. Conventional lenders can take as long as 60 days to close, and while personal loans and credit cards are another option, the interest rates on those tend to be even higher than what you would expect with a construction mortgage.
What if you’re having a difficult time accessing financing through traditional lenders? Banks and credit unions have significant levels of scrutiny and regulation when it comes to approving construction mortgages. It makes sense – they want to cover their own risk, and a second-position mortgage is riskier than the first note just because if a borrower goes into default in the middle of incomplete renovations, getting enough value out to satisfy the first mortgage might be problematic, let alone the construction mortgage.
However, one of the reasons that the private lenders Canada and other countries feature have emerged is that there are borrowers willing and able to satisfy the terms of a loan despite not having the right credit score or income history to check the right boxes on a lending application. As a result, many Canadians who could secure financing and get renovations going end up waiting because they heard a negative answer from a bank or credit union.
One of the most common questions we get at Amansad Financial is, “Are private money lenders legal?” Not only are they legal, but they help many of our borrowing clients get started in their dream home – and with their renovations – a year or two earlier than they would have been able to, had they had to wait until their credit score fit an artificial minimum. The private lenders Canada and other countries feature also consider credit scores, but the value of the property takes on a more significant role in the lending decision.
Amansad Financial Services has relationships with many Corporate and Individual Private Lenders and Investors. However, the number of Private Lenders and Investors that like to take on renovation and construction is less than a typical purchase, refinance or equity take out private mortgage. This is primarily due to the higher risk associated with construction financing. In some cases, involving additional security by way of a blanket mortgage or different security can lower the risk associated with construction financing so that the capital can be provided in a lump sum as opposed to in draws.