Is a Secured Line of Credit the Only Way to Complete Home Renos?

So you want to add onto your home. Or redo your kitchen, or your bathroom. You need the extra space and you know that it will add a lot of value to your home. The problem is that you don’t have the extra cash laying around in your bank account to do it. So, what’s a homeowner to do?
Many decide to take out a secured line of credit, such as a home equity loan or a HELOC. But, is this really the best way? Well, it might be. Secured lines of credit work very well for many homeowners and give them the extra cash they need. But, according to David Chilton, the Wealthy Barber, this could also be a dangerous situation to some homeowners. Chilton says that, while it may just start with the one room, once that room is finished, homeowners then turn their discriminating eye towards the other rooms in their homes. Couldn’t that bedroom be a little bigger? And isn’t all that decorating in the living room a little outdated? And what about that basement you never got around to finishing? It really can be amazing how quickly homeowners become disappointed with those other rooms, once that first room is all shiny and new.
And, Chilton also says, this is where it becomes risky for homeowners. After all, taking out a secured line of credit on your home is easy, right? Yes, a little too easy at times. Especially when homeowners become unhappy and overly critical of their homes. And this is what, according to Chilton, can get many people into trouble and into a great deal more debt than they had originally intended. So what’s the answer?
It could be the Purchase Plus Improvements Program, also known as the improvement, renovation, or high-ratio mortgage. With the PPIP, a homeowner can apply for a mortgage plus the amount they need for any renovations they want to do on the home. Lenders will then help the homeowner get financing for both their needs. The total cost of money borrowed can be as much as 95% of the home’s value after renovations are completed; and the homeowner needs to pay a down payment of at least 5% the home’s “as improved” value.
In order to be eligible for the PPIP, a homeowner must be making renovations that are more than merely cosmetic, such as painting walls or putting up wallpaper. The project must be on a larger scale such as renovating a bathroom, kitchen, or ripping out the floors. Home buyers must also be prepared to obtain quotes from contractors for the renovations and afterwards, an inspection will be done to prove that the renovations have been done properly.
PPIPs aren’t for everyone though. There is a premium that must be paid and homeowners that don’t need a great deal of money for their renos might be better off with a secured line of credit – something that doesn’t have a premium attached to it. Also, many people might also find that a loan such as HELOC works better for them, as they can pay whatever they can afford, whenever they can afford. Unlike a PPIP, which comes with a monthly mortgage payment that you will be responsible to pay at that time, whether you can afford it or not. And of course, because a PPIP needs to be applied for at the time of home purchase, if you’re already living in the home, and have been for some time, a PPIP may not be applicable to you.
But PPIPs are out there, and they are great alternatives for Canadian homeowners that don’t want to get into too much debt, yet still want to fix up their new home the way they want it. Those who are interested should speak to their mortgage broker or their lender before the time of purchase, to see if they qualify and whether a PPIP or a secured line of credit will be most suitable for them. The most important thing to remember is that you have options – and you should be aware of them.