How to Finance A Century Home

Edited Transcript:

You are here because you're considering the prospect of buying a century home in Ontario. And I'm sure you've heard that century homes come with their own challenges. Sometimes you might have even heard of someone who bought a century home, and it just ended up being a money pit, and that's what you're trying to avoid.

Ultimately, you've worked hard for your money. You know that there are challenges that come with it, so we're going to speak to some of those challenges, what you can do ahead of time to avoid those challenges, as well as what to look for as you go through the process so that you don't get into any of those tight situations so that you ultimately have a plan from where you are now to get you into your dream century home that you can love for years to come.

Be Prepared to Buy

The truth is that when it comes down to the way I look at it on the mortgage side, it's all about being prepared. So, the best way to be successful with a purchase like this is to think ahead and be prepared. So first and foremost, some advice for people who are out there looking to buy century homes or looking to get into that market is start with a pre-approval.

Get Pre-Approved

It may seem simple, but the pre-approval is really your way to understand that the budget works, the numbers work, and there are no surprises with the way that either your income is calculated or the way that, you know, they might approve the mortgage based on the way the rates are today. So first and foremost, start with the pre-approval. It will hold your rate for up to 120 days. It will give you some peace of mind and give you that confidence to get out there and start shopping, even though you may have the urge to start shopping first.

The Benefits of an Accessory Apartment

Speaking along the lines of a preapproval, the one thing that might be able to help you or that you might want to talk about earlier in the process is the idea of supplemental or accessory income. So it's not for everybody, but in a lot of these homes, there may be a secondary apartment or a secondary suite that is, you know, suitable for renting to another person. And in today's rental market, rent can contribute a lot of income to the situation and can help you improve or raise up the amount you might be able to borrow based on this new income that you could use.

Be Ready to Act Quickly

Finally, you know, the other reason to be prepared is timing is key. We may not know exactly when the perfect house comes along. It may go on the market tomorrow. And so if you're thinking about that process and really thinking about getting out there and considering a unique property like this, the right one for you may not come along for months but when it does, it always feels better to be ready. So start ahead and have your ducks in a row, so to speak, so that when the time comes, you know you're prepared to make that move if it's the right move for you.

Know The Neighbourhood

When it comes to Guelph’s century homes, they tend to be closer to downtown. The borders of the city used to be a lot smaller than they are now. There are the odd country home or old country home that's now in the city outside of the downtown area. But getting an appreciation for what those neighborhoods in the core downtown look like, getting an appreciation for even just street to street. Because it's so close to the downtown core, just being one street over can make a massive difference in the feel of the neighborhood. 

If you can get an appreciation for that upfront, you'll be able to, again, rule in and rule out some properties before they even come on the market. And then you can also identify some problem areas.

You might be able to even reach out directly to that homeowner to see if they're thinking about selling because there might be someone else who also has their eye on it.

Be Ready for the Home Appraisal

When it comes to the financing side, now that you're thinking that you found a property and you've fallen in love with it, it's time to start getting serious about making sure the numbers work. A couple things that are important or tips that are really valuable for somebody in that stage, of course, expect an appraisal. It's very common, especially with older homes, to see that the lender or the bank that you're working with is going to want to do an appraisal, which is an evaluation of the value of the property. So it's meant to make sure that the price you are paying for that home matches up with a reasonable market value for that property.

It's important because unique homes of this nature, you might have fallen in love with and been prepared to pay a little bit more than you might have for a similar home somewhere else. So make sure that you temper that expectation with your realtor. Make sure you understand what the comparable market looks like so that the value you pay for the price, sorry, the value you pay for the property matches up with, you know, what's reasonable in the market.

Critical vs Cosmetic Issues

While that appraiser is not meant to go in and, you know, assess the property's condition or functionality, sometimes they do note situations on the appraisal report, which could cause a problem if not prepared for in advance.

So a couple things that are critical that might come up, and it really comes down to whether or not the property can be insured. Your home insurance company that will provide you with fire insurance, needs to make sure that the electrical is functional and meets the basic standards and that the heating system is functional.

It may feel like a property is your perfect dream property because the decor, the design, the layout, the finishes, even things like the roof are exactly what you had expected. And you might think that either wiring or the furnace is an afterthought, but be really aware of how the lender might look at it. In their mind, you can always change decor, you can always renovate, but you may not be able to close your purchase on the day you expect if the property can't be insured.

So those are really the two common issues from a financing perspective. And a lot of the rest of it is considered cosmetic in their mind. So keep your mortgage agent/broker, as well as your realtor engaged throughout the process so that we can help you to head off those issues as they may come along. And that will help you to make the most of the financing and make sure the financing process is as comfortable and easy as as possible for you.

Common Issues with Older Homes

Some of the other issues and building off of not only the lender side, which can affect you getting a mortgage, but also some of the things that you might just not want to have to pay a fortune to remedy. Of course, there's things like the wiring. A hundred years ago, they didn't use copper wiring, or the same style of copper wiring rather. They used knob-and-tube wiring, which lenders don't like. But also over the course of a hundred years, you can get a lot of different homeowners doing renovations, which can just lend itself to a mess of wiring, which you might not want to get yourself into or you might want to be aware that you're getting yourself into, as well as during those renovations, they can be done in different levels of quality over time.

So whether that's vermiculite insulation or asbestos wraps on piping was very popular back in the day. There are telltale signs that can point to that that you can be aware of and look for during the process.

From an outside of the home standpoint but still on the property, you need to pay even more attention than on some of these newer homes because property standards and planning wasn't as developed a hundred years ago as it is now. So even though it looks like houses are uniform, if you were to lay down the property lines, in real life, they might look like this whereas the house looks like this. Your shed or garage might actually be in your neighbor's yard and you're parking, while it looks like that's your driveway, it might actually be your neighbor's. And if you don't have a legal right of way to that parking space, then that can affect value massively, as well as just your enjoyment of your home.

The Mortgage Process for Older Homes

Here's a quick overview of what the mortgage process looks like. Number one, again, just to reiterate, pre-approval, do it first. It's not complicated. It helps to understand whether or not, you know, the numbers make sense for you and for the bank overall. It doesn't provide a guarantee and it doesn't commit you. So you can change lenders after the fact, you can do whatever you want, but it really gives you a sense that you're headed in the right direction. Of course, then you get out there and the fun stuff, you start looking for a property, you find the one you love, your realtor and you go through all the issues together, like what Dillon mentioned earlier.

After the pre-approval and house hunting, you get to that accepted offer. From there, that's when the pedal hits the metal, when it comes to the mortgage process itself. We submit that application, then we get a commitment. The commitment letter is essentially your offer, your contract with the lender or the bank to provide that mortgage, and it includes all the important terms and conditions. So, you know, the rate is one thing, but there are so many other things that are, you know, part of that.

Once the commitment is signed and you're satisfied with that, then, really, you get into gathering documentation, which leads towards a lawyer meeting. So you'll meet with your lawyer, whoever you've chosen to handle that transaction for you, usually a couple of weeks ahead of time but it can vary depending on their schedule and yours. You sign some final documents there. That's when you'll have to deliver your down payment and, you know, provide a check for their services.

Finally, after that point, it's waiting until the closing day. So it could be one to two weeks and then you'll receive your keys or your lockbox code on the closing day.

The good news is that we get a lot of this stuff done earlier in the process so that you'll avoid all surprises much, much, much earlier. So if an appraisal is requested, it'll happen somewhere after commitment or hopefully right around there. So just one more piece of that pie but that's overall what the process looks like. 

Buying A Home With Help

When we're talking about going through the process, it's important to assemble a team for yourself. And if that team has local knowledge, then you're just going to be in such a better position to be able to stay on top of the unique issues that buying a century home brings.

It's good to get the viewpoint of a mortgage broker and a realtor, and an inspector who knows the particular issues that are common for historical for homes in the area can be massively helpful. They might have even already been in the house that you are looking at and they can speak to some of those historical issues.

A local appraiser can help to speak on your behalf when it comes to explaining situations to the lender, who may only look at numbers on a spreadsheet.

Because a local team tends to bump into one another more often and work together, they ultimately just work more cohesively because they have a rapport with one another.

Connect with us if you're thinking about the next steps in your goal to purchase your dream home. 

We'd love to help.