When financing renovations, there are several steps homeowners can take before upgrading their property.

“First of all, I would identify the work that needs to be done and make sure it will add value to the property,” says Anthony Adrien, regional account manager with the Canada Mortgage and Housing Corporation (CMHC). “(Homeowners) should also see at least three contractors and get some quotes on how much it would cost to get their renovations done.”

First-time homebuyers can provide the quotes to their financial institution and — provided the renovations increase the value of their property — incorporate them into their mortgage. Typical renovations include kitchen repair, additional bathrooms, basement finishing and furnace replacement. Energy efficient upgrades are also popular.

“As long as it’s fixed to the grounds, then it will increase the property’s value,” Adrien says. “A home stereo system, for instance, doesn’t increase the value of the house because it can be removed at any time.”

Existing homeowners should approach renovations in a similar manner. “It’s the same process except they already own the home,” says Adrien. “I would recommend they determine the work they want to do, get the costs associated with that work, approach their financial institution, and get the money.”

Many homeowners, Adrien says, do the renovations themselves over the course of a year, relying on credit cards and only approach the bank when the work is finished. They attempt to refinance their home to pay off the credit card debt, only to be refused a loan because their bank believes the renovations didn’t increase the value of their property.

“The advantage of doing it beforehand is the homeowner and financial institution are in agreement on the type of work to be done and by how much it’ll increase the value of the property,” says Adrien, “so there won’t be any surprises after the fact.”

If it’s a major renovation, the bank will usually advance funds based on the value the renovations add to the property.

“Do your homework, research the type of renovations that are done, and get quotes from reputable contractors to make sure you’re getting the best value for your buck,” Adrien says.

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