<< October 12, 2021 >>
We are pleased to announce that our first impact home family is officially moved in! The family arrived several days ago and is settling into their new home. We are so grateful for all of those who contributed to getting Foundation House launched. While there are still a couple steps to wrap up, the most important step is behind us – moving in a refugee family in need of safe, accessible, and fair housing.
And for those of you wondering… the boiler was installed without an issue.
You might think we’re all wrapped up, but there is one more important step! Remember back in July when we mentioned that only 25% of the cash needed to purchase and rehab the property needs to be fundraised? Well that is because we use some special financing to get access to short term funds that allow us to purchase the property with cash. Now that the property is fully rehabbed and rented, we need to refinance the property by opening a mortgage.
Why get a mortgage now? If we had gotten a mortgage when we first purchased the property, then we would have been able to get a loan for 75-80% of the purchase price of the house. That means we would have had to put down 20-25% of the purchase price in cash as a down payment. Afterwards, however, we would have had to pay for all of the upgrades and repairs in cash.
The $18,000-$20,000 in repairs and upgrades, however, have now raised the value of the home by at least that amount. So when we refinance and open a mortgage on the property now, we will be able to get a loan for 75-80% of the new home value. This value is called the after repair value (or ARV) and is significantly higher than the initial purchase price of the property.
When we open the mortgage, the bank will give us cash for the value of the mortgage. And this cash will allow us to pay off the initial short term loan we opened to make a cash offer on the property.
Confused yet? If so, don’t worry about it. Just know that by waiting until now to get the mortgage, we will have saved over $10,000 for a fully refurbished house. And that savings gets us that much closer to the next impact home.