Before approving you for a mortgage, a lender will typically review 4 areas of your mortgage application:
- Down payment/equity
- The property itself
So if you already own a home, and you want to upsize, downsize, or renovate, or you want to purchase a fixer-upper as an investment, remember that the condition of the property you want to finance matters. If it isn’t in good condition, it could be hard to arrange mortgage financing.
The property matters because it’s the collateral the lender holds in case you default on your mortgage.
Lenders will make every effort to ensure that any property they finance is without defect. They want to see that a property is what they call “prime and marketable”: if you do default on your mortgage, they want to know whether they can liquidate (sell off) the property quickly and recoup their money.
To establish value, they appraise the property. If your mortgage is insured through an insurer like CMHC or Genworth, they will have used an automated system to appraise the property (you might not even have known an appraisal was done). For conventional mortgage applications, however, a physical appraisal—where an actual appraiser goes to the property—is required.
What happens if you want to purchase a property that might not be in the greatest condition? This is where a purchase plus improvements can be a great mortgage option.
A purchase plus improvements allows you to purchase a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done—there’s certainly a series of checks and balances—but it’s very doable.
If you have any questions about financing your next property or potentially using a purchase plus improvements to buy a fixer-upper, please don’t hesitate to contact us anytime!