When it comes to purchasing a former grow-op home, mortgage financing can be tricky. Here are five important facts you should know in advance:
Fewer lenders will finance former grow-ops.
Credit unions seem to be slightly more lenient when it comes to securing a mortgage, but we still recommend using a seasoned mortgage broker. You should find a broker in your local area who is familiar with the process. Before lenders even consider you, several requirements will need to be met.
Expect to pay a higher interest rate and/or fees to the lender or brokerage.
For lenders, there are more risks associated with lending on a property that was previously a grow-op. There is also a significant amount of administrative work for these files, so the lender/brokerage will often charge an admin fee.
You can also expect to pay a higher interest rate (as much as 2% greater). The risk for the lender increases drastically when it comes to financing a former grow-op. For the lender to have a sense of security they will often inflate the interest rate to provide some sort of cushioning should the borrower default on the mortgage.
Have extra cash set aside, as costs on former grow-ops can exceed $10,000+.
The majority of lenders/banks will require a copy of a remediation report. This means that you as the potential buyer will need to hire a company that specializes in testing different aspects of the former grow-op. These companies look at things such as air quality, moisture, mold, electrical etc. The company provides a document called the “remediation report” when the inspection is complete. This type of inspection can be costly and is only one of many steps that you’ll need to complete.
Re-occupancy may need to be reinstated by the city
Lenders and banks also require proof that “occupancy” has been reinstated. The city will remove occupancy from the home’s title if the grow-op was illegal and a report has been filed. It is illegal to live in a home without occupancy. To reinstate occupancy, you will have to file a request through the city and they will often ask for a remediation report.
Patience and determination will be very important when it comes to buying your former grow-op home.
Expect the unexpected, there will likely be bumps throughout this process, so patience is a virtue. If the former grow-op was not caught by the police, no report will have been filed so occupancy will not be removed. When asked by the lender for reinstated occupancy, you will not have anything to provide. These cases become challenging and so your selection of a mortgage specialist becomes crucial.
If you’ve considered buying a former grow-op home and would like more information call Browne Mortgages!