For many Vancouver Island buyers, a secondary suite can make homeownership more manageable. The rental income may help with monthly expenses, or the space could provide a private place for an adult child, parent or extended family member.Most buyers begin by searching for homes that already have a suite. That is the obvious approach, but it can also narrow the search considerably.
Sometimes the better opportunity is a home with an unfinished basement, a suitable lower level or another space that could potentially be converted into a legal suite.
What Is Purchase-Plus-Improvements Financing?
Most buyers assume they need to purchase the home first and then find a separate way to pay for the renovations.That is not always the case.
With certain purchase-plus-improvements mortgage programs, qualified buyers may be able to include the cost of approved renovations in their mortgage. The lender considers the purchase price, the proposed work and the anticipated value of the home once those improvements are complete.
This type of financing can be used for different kinds of renovations. Depending on the lender and mortgage insurer, it may include creating or upgrading a secondary suite.
Every program is different, so it is important to speak with a knowledgeable mortgage professional before relying on this option.
Can Future Rental Income Help You Qualify?
In some cases, yes.Certain lenders and mortgage insurers may consider projected rental income from a proposed secondary suite. An appraiser would usually need to provide an estimate of the suite’s fair market rent.
How much of that income can be used depends on several factors, including:
- Whether you will live in the home
- The number of dwelling units on the property
- The lender and mortgage insurer
- The appraiser’s rental estimate
- Your income, debts, credit and down payment
- The lender’s allowance for vacancy and operating expenses
What Does the Process Look Like?
The exact requirements vary, but the process generally works like this.Start with the mortgage conversation
Speak with a mortgage professional before beginning your home search. They can explain which programs may be available, how much renovation financing might be considered and what documentation will be required.Doing this early is much better than finding the perfect property and trying to arrange a complicated financing plan at the last minute.
Find a property with realistic potential
A large basement does not automatically make a home suitable for a secondary suite.We need to consider the layout, entrances, ceiling height, windows, plumbing, electrical capacity, heating, parking and overall condition of the space. Rural properties may require an additional review of the septic system.
These details can quickly change the cost or feasibility of a conversion.
Obtain contractor quotes
The lender will normally require detailed written quotes for the proposed work. These quotes help establish the renovation budget and give the lender and appraiser a clear understanding of what will be completed.Confirm the local requirements
The proposed suite must comply with the zoning, permit and building requirements that apply to the property.Rules can vary between municipalities and regional districts. A space that has previously been rented is not necessarily a legal or authorized suite. Even separate utility charges do not confirm that the required permits were obtained.
This is something we need to investigate, not assume.
Complete the appraisal and financing review
An appraiser may be asked to provide the home’s current value, its anticipated value after the renovation and an estimate of the suite’s future market rent.The lender then reviews the buyer, the property, the quotes, the renovation plan and the appraisal before deciding whether to approve the financing.
That approval should be in place before the applicable financing conditions are removed.
Complete the approved work
The renovation portion of the mortgage is typically not handed to the buyer on completion day.The funds are generally held back until the approved work has been completed and verified. That means the buyer may need to pay contractors first or arrange a suitable payment schedule.
Before moving forward, buyers should understand exactly when the funds will be released and what proof of completion will be required.
Questions Worth Asking Before You Buy
If you are considering a property because of its suite potential, we should find answers to questions such as:- Does the property’s zoning allow the proposed suite?
- What permits will be required?
- Is any existing suite authorized?
- Does the layout provide a practical and safe entrance?
- Will the plumbing, electrical or heating systems need major upgrades?
- Is there enough parking?
- Can the septic system support another dwelling unit?
- Are there strata restrictions?
- What will the renovation realistically cost?
- How will contractors be paid before the renovation funds are released?
- What rent is realistic for the location and type of suite?
- Can you comfortably carry the home during vacancies or unexpected repairs?
Is an Existing Suite Still the Easier Option?
Usually, yes.An existing authorized suite offers more certainty and may begin producing income sooner. Creating a new suite involves permits, renovations, inspections and more moving parts.
On the other hand, building the suite yourself may allow you to choose the layout, finishes and level of soundproofing. It may also help you purchase a home with less competition than one already advertised as having a mortgage helper.
Neither option is automatically better. It depends on your budget, timing and comfort level with renovations.
Look at the Possibilities Before You Rule Out the Property
A home without a finished suite may not be the wrong home. It may simply require a different financing and renovation strategy.The key is to do the homework before committing to the purchase.
A mortgage professional can determine whether the financing may work. I can help identify homes with realistic suite potential, investigate the property details and make sure the right questions are being asked along the way.
If rental income or multigenerational living is part of your Vancouver Island home search, let’s discuss it at the beginning. You may have more options than you realize.
This article provides general real estate information and is not mortgage, legal, construction, tax or financial advice. Mortgage programs and qualification requirements vary. Buyers should obtain independent professional advice and verify all zoning, permits, construction costs and rental assumptions before purchasing a property.ontent goes here
