Renovation Loan

Are you living in your dream neighbourhood with great schools and nearby parks, but the interior of your home isn’t exactly as you pictured it to be? That’s ok – finding the location you want to raise your family in is sometimes the hardest part.

Or maybe your home already was your dream home, but now it isn’t quite serving your needs the way it used to. You like your neighbourhood and you’d rather renovate than move.

The good news is that you can renovate your home to make it what you want it to be, but where will the money come from? Renovation costs – especially on older homes – can add up really quickly!

Renovations are a great way to take a home and make it exactly the way you want it to be. When you know you want to stay in your home for a long time and build a safe space for your family, it makes sense you want to come home to a space that is designed exactly as you want it to be.

The good news is that you can get a loan specifically for renovating your home to make it truly yours. In fact, there are a couple of options for financing the renovation.

Renovation Mortgage

This kind of financing happens at the time you purchase your home. When you apply for a mortgage, your mortgage will also assume the costs of your renovation, so you will have to estimate how much the upgrades are going to cost.

When you are pre-approved for your mortgage, your lender will take your financial information into account in order to determine how much home you can afford. This is the maximum limit, so if you decide to purchase a home that is less than the maximum, you can work with your mortgage broker to apply for a larger loan in order to cover the costs of the renovations.

This can be difficult as you don’t want to overestimate and have too much mortgage, but you also don’t want to underestimate and have to stop the renovation partway through. Consulting with a good contractor, however can give you a good idea of what the costs will be.

Keep in mind that your lender will want assurance that the renovations you plan on making will add value to your home, so the process may also require the assistance of a professional home appraiser.

If you have the time and budget for it, getting a renovation mortgage can be a great option as a new homeowner. It allows you to pick the perfect location and neighbourhood while also preparing your home just the way you want it, so it will be completely ready for you by the time you are ready to move in.

Renovation Loan

If you have lived in your home for a while trying to decide what parts you want to renovate, or maybe you wanted to see how you would use the space before you changed it, then a renovation loan is probably the best option for you.

If you are getting a renovation loan, you have a couple of options to look at. First, you might have enough equity in your home (depending on how much is left owing on your mortgage) to use the equity to secure a low-interest loan to renovate your home.

A renovation loan will be for a specific amount of money, and it will have to be paid in installment payments. This may not be ideal for your needs since the payment options are not flexible.

With a renovation loan, you don’t have to get approval on exactly what you’re renovating – the money is yours to decide what you do with it. You can renovate one room at a time or completely gut your house. It’s your call!

When applying for a renovation loan, you’ve got a few different options to consider:

  • Second Mortgage – with this option, you are borrowing against your home equity. Many lenders will let you borrow up to 80% of your home equity – and in some cases, even more. So if you have $200,000 in home equity, you may be able to borrow up to $160,000 with a second mortgage. With a second mortgage, you don’t have to break your first mortgage, and although the interest rates are slightly higher than those of first mortgages, a second mortgage is still a much better deal than unsecured forms of borrowing such as credit cards. 
  • Mortgage Refinancing – Another way to borrow from your home equity is through mortgage refinancing. With this option, you would break your first mortgage and replace it with a new mortgage that had additional room for your renovation loan. With this option you would pay a lower interest rate than you would on a second mortgage, however because you would be breaking your first mortgage, you would have to pay a financial penalty. If you are fairly close to your renewal date however, this may be a more affordable option than getting a second mortgage. 
  • Unsecured loan – The final option is an unsecured renovation loan. In terms of your interest rate, this would be your most expensive option however, if you do not have sufficient home equity to cover the costs of your renovation, then it may be your best choice. An unsecured loan is simply a loan received in a lump sum that you would repay over a period of time with interest. It is not tied to your home equity in any way. 

If you are not sure which of these options is best for you, your mortgage broker can help. They will gather information about your current mortgage and your financial situation and then run the appropriate calculations to determine what type of renovation loan makes the most sense for you.

Line of Credit

We can also work with you to get a line of credit for ongoing renovation plans. We all know that unexpected expenses can come up during renovations, and you might need to do some additional work you didn’t plan for. That’s what the line of credit is for. You can use a little bit now and have a buffer if you run into extra expenses. Additionally, a line of credit offers much more flexible payment options too, as some secured lines of credit offer interest only payments.

The benefit of a line of credit for home renovations is that you don’t have to keep reapplying for funds. If you renovate your bathroom now and pay it all back and then want to redo the flooring or the kitchen, as long as you keep the line of credit in good standing, you will continue to have access to those funds.

There are essentially two types of line of credit that can assist you in paying for a home renovation:

Personal line of credit: this line of credit works most like a credit card because it is an unsecured loan. Typically, this type has a higher interest rate, and you will generally need to have a better credit rating in order to qualify. 

Home equity line of credit:  this line of credit works essentially in the same way however it is a secured loan because it is tied to your home equity. This means that it is usually easier to qualify for (provided you have sufficient equity in your home), and compared to a personal line of credit, you can usually get a better interest rate. 

Depending on the extent of the renovations that you are looking to make, you may choose a line of credit as your primary financing tool (for smaller projects) or as a secondary financing tool (to cover possible unexpected expenses).

Credit Cards

Another way to borrow money for your home renovations is to simply use your credit card. This is by far the most expensive way to borrow money unless you can afford to pay your credit card off in full when your next bill comes in.

During renovations, credit cards should be used sparingly because of their high interest rates (some credit card companies will charge you 20% of more!). This makes them best suited to pay for smaller expenses when using a credit card is just more convenient. (For example, paying a $2000 down payment to a contractor).

For larger expenses, that you know that you won’t be able to pay off right away, it is best to choose one of the lower interest options discussed above.

What if I have bad credit? 

There is no denying that it is easier to get a renovation loan at a better rate if you have good credit. But even if you have bad credit, it doesn’t mean that you can’t get a renovation loan. 

There are many lenders who specialize in helping those with bad credit, and if you have enough equity in your home, it may still be possible to get the financing you need for your renovations.

In fact, sometimes getting a loan can actually help you to rebuild your credit score – providing that you are able to keep up with your payments.

Should I still get a renovation loan with bad credit? 

It depends. If you have a lot of debt you need to pay off, and the renovations are things that can wait, then it might be better to hold off while you bring your finances back in order.

But if you have renovations that you need to make in order to improve the safety, security, or accessibility of your home then that may be a higher priority. It is still important to make sure that you are able to make the payments – but your mortgage broker can help you with strategies (such as adjusting your amortization period) that can help make the payments more manageable.

The Advantage of Working with a Mortgage Broker

When you think about completing home renovations, you likely think of various types of contractors, designers, and tradespeople. And while your mortgage broker may not be the first person that you think of for helping you complete your home renovations, they should definitely make your list!

Unless you have enough money to pay cash for your renovations, you will have to get financing of some sort, and your mortgage broker is in the ideal position to recommend the most appropriate type of loan for you and to help you get the best possible interest rate. 

Whether you are purchasing a home that you intend to renovate right away or whether you are renovating a home that you have lived in for some time, your mortgage broker can assist you in getting the financing you need.

Some of the advantages of working with a mortgage broker to secure a home renovation loan include: 

  • Get professional advice on the right type of loan to get for your situation.
  • Because your mortgage broker has connections with dozens of lenders, they can compare rates to help you get the best deal on interest.
  • If you are self-employed or have challenges with your credit, your mortgage broker can find you a speciality lender that will work with you.
  • They will assist you in finding other professionals if necessary (home appraisers, real estate lawyers, etc.). 
  • They will guide you on what financial information you will need to collect for your loan application. 
  • They will assist you with your renovation loan application to make sure that everything this correct and complete. 
  • They will answer any questions you may have about your renovation loan. 

Contact Us Today

Are you ready to take the next step in upgrading your house and turning it into your dream home?

Call us to schedule an appointment today to discuss the options you have for getting a renovation loan for your home. It’s easier than you think, and we work with dozens of lenders across the country, so together we will find one with terms and repayment that works for you.


Renovation Loan FAQ's

Qualifying for a renovation loan isn’t based on the amount of time you’ve lived in your home. There are many factors taken into consideration as to whether you qualify for the loan, so book an appointment today and we will talk about your options.

Renovation loans are not restricted based on the type of renovation loan you are getting although the amount you can qualify for depends on a number of factors. Give us a call today so we can discuss your option.

Like any other money you borrow, the loan will still need to be paid back. If you have questions about the terms of repayment or what works best for you, one of our agents would be happy to discuss that with you before taking out the loan to make sure you are completely comfortable.