Refinancing After Outright Purchase of a SFH

10 Replies

My area currently has a few foreclosures available and many have come to the market over the last year or so. I have been trying to figure out how to get into the market and purchase one of these homes that are selling for well under market value. I already have one property that I got through a conventional mortgage that was CHMC insured. I am unable to obtain another CHMC insured mortgage so I have to put down 20% or use alternative financing.  I am focused on using private/hard money to purchase the house outright and then refinance to pay back the private/hard money lender. 

I am wondering if anyone has any experience in refinancing a house right after purchase in Canada. I know in the states there is a 6 month cooling off period before you can refinance it. I am assuming the same goes for Canada?  Also wondering if I can refinance using the property tax assessment from the city/town as the "value". The foreclosure houses in my area are listed for 60-70% of their appraised value as per the municipality tax assessments. As an example the property tax assessment of a foreclosure house is $100,000 and I purchase it for $65,000 using private/hard money. After six months I try to obtain a home equity line of credit or other refinance tool using the $100,000 tax assessment value, assuming my credit is good enough. I am also assuming a home appraiser would also come up with a similar $100,000 value as well. Just wondering if this is a plausible scenario or will my original purchase price of $65,000 hold more value with potential lenders than what it would be appraised at? Thought I would check with the community before reaching out to local banks/brokers. 

The short answer… maybe!

Depends on the type of mortgage you took out on your home, the amount of equity available and the lender you chose.  

I may be able to assist, DM. 

Hi William,

Fellow Canadian here. I refinanced a property I purchased a couple of months after so I do not believe there are any cooling off periods required. The bank would just do the same process as a conventional mortgage to see if your income level and credit qualifies you for receiving a mortgage - in this case a refinance. Any rental income you have will help add to your income level.

Typical refinance maximium a bank will do for you is 80% of its assessed value. They will send out an appraiser to determine the value of your property and charge you for it, they do not use property tax assessment value.

My recommendation is to call a top lender in your area and ask.

Awesome, thanks for the feedback on your actual experience James. I will send you a DM Julie. 

I would make sure you qualify for the amount you have in mind for the property before you go through with the purchase. As far as cooling off period, I refinanced with a major bank after 3 months. Hope this helps!

@William Radford Few borrowers know that they can refinance the very next day, usually a balance sheet lender will do this. 

I have a very similar situation I am currently in, and was just asking around Bigger Pockets for advice. Julie Toh provided some insight so far. 

James & Matt, when you refinanced shortly after your purchase what type of mortgage did you have initially? 

We just bought a 4-plex, with 3 units completed and rented, we are currently renovating the 4th to get it complete and rented at market rates (as other 3 units are well below market). Once the 4th unit is completed and rented our revenues will have increased by just over 35% (we already have a professional tenant waiting to move in). 

Once all units are occupied I want to go back to the bank and get the property re-appraised in order to refinance and recoup renovation costs, and hopefully more. 

I entered into a 5yr fixed, 30 yr mortgage. Did either of you have similar mortgages when you refinanced? 

Just looking for advice on how to approach the bank, and the process, when we complete these upgrades 

Thanks and look forward to responses, 

Sheldon

@Sheldon Peart

It shouldnt matter what type of mortgage you have. It's just a debt liability in the bank's eyes and they'll look at your income and LTV ratio

I forgot to mention that banks usually do need 3 month record of tenant income to count towards your income which may or may not affect your ability to qualify for a mortgage depending on your income.

Thanks James, 

I am planning on paying for an appraisal ourselves and then bringing that appraisal to the bank when we ask to refinance. The renovations to get 4th unit complete will be about 35K all in, but a general contractor quoted me at 78K, since I managed all contractors myself we saved alot of money. I am going to present the bank with the general contractors quote since that seems to be the "market" price at the moment. 

Does this sound like a rational approach, or do you think i am missing something?

Thanks for any advice, 

Sheldon

I'm not sure I'd waste your money on your own appraisal. It might be fine, but banks often insist on having their own done anyhow. 

The banks don't care so much about what renos could cost, should cost, or will cost, it's what it's worth when you are done. You could spend $10,000 painting the house pink with blue polkadots, that doesn't mean the house is worth $10,k more, it might be worth $10k less after a paint job like that. It's not what you spend, it's what it's worth. 

I just put over $200,000 into a house in renovations, and asked the bank if they wanted receipts when I refinanced. They didn't care about receipts, it was all about the appraisal. Appraisers that are working for banks also do their appraisals a bit differently than someone wanting to know market value. The bank wants conservative appraisals.

Unfortunately, you are at the mercy of the appraiser. If you don't like the appraisal, tell the bank there is a conflict of interest, and you'd like another. You'll have to pay for it, but it MIGHT come back higher.

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