The transcript recommends taking a variable rate when acquiring the property because fixed rates can trap you with high penalties if you need to switch lenders to refinance shortly after purchase. Variable rates typically carry a predictable three-month interest penalty, giving you flexibility to move to another lender if your current one won't allow a quick refinance or if your financial situation changes.
The condition of the property determines whether you qualify for standard bank financing or need to use alternative or private lenders. If the property requires a complete gut job or has issues like water damage or knob and tube wiring, you may need 25% down instead of 20%, and your cost of borrowing will likely be higher.
While standard bank mortgages do not typically include renovation capital upfront, some lenders offer a Purchase Plus Improvements product where you are approved for the mortgage plus improvements but must complete the work first. The lender will release up to 80% of the renovation capital after the work is done, meaning you still need cash or lines of credit to fund the renovations initially.
Some lenders require at least 6 to 12 months from the purchase date before they will reconsider a refinance at a newly increased value, and some may not allow equity extraction so soon after renovations. It is crucial to validate these timing assumptions with your mortgage broker before entering the deal.
You should create an executive summary for the appraiser that includes before and after pictures, a detailed list of work completed, renovation costs, permits, and sold comparables from the past 90 days. The more information you provide, the easier it is for the appraiser to support the highest possible value for your property.
