How to own your new house and keep your old one while your new home is being built

When contractors start removing walls from your house in the middle of the night, it’s usually not good news.

But if the house you’re selling is being rebuilt from the ground up, you may be able to save the headache.

For about $36,000, startup Eve Mortgage has you covered. It converts your home into a “local owner-resident” that has jurisdiction over the construction, so contractors can build more safely. Once the new home is ready for occupancy, the company finds a family or individual to move in.

Eve’s customers are clients of real estate companies, but the founders, Glen Wilkes and Guido Hammill, began developing the company last year to help local buyers acquire and have a say in the new home they’re buying, rather than inheriting a parking space. That’s what tenants often find in older homes, and it’s where Ottawa-based developers want to go, Wilkes said.

“Our clients are clients of developers,” he said. “We were in the development business before we were in the flipping business.”

With the collapse of the U.S. housing market, few are moving into the rental sector. But if you’re behind on your mortgage, getting a home might be an opportunity. Canada has plenty of buyer-distressed properties, and some of its urban centres are in a similar situation to the U.S. in terms of supply and demand, while edging closer to the top of the world’s most expensive cities.

The Canadian government offers home buyers three ways to buy, Wilkes said:

A down payment mortgage that locks in the mortgage interest rate, so you don’t end up paying more than you’re paying right now. A capital gains mortgage, where the difference between the mortgage interest rate and the home price is tax deductible. And a home buyer’s grant, which is the government’s way of trying to improve supply and constrain price growth.

Each year, the home buyer’s grant is capped at $35,600. But there’s no cap on how much you can borrow through your “local owner-resident,” which means that in a few years, you can borrow more than you can afford.

“With [these] benefits, this can become a viable option for people who may not be able to afford that full mortgage,” Wilkes said.

An advantage of the local owner-resident scheme is that there are fewer costs. For example, you can always refinance the mortgage through a loan officer at the bank if you need to, but not for the home.

You might have to incur some costs, though. One service Eve offers is debt finance, which allows you to charge yourself a percentage of the mortgage interest you pay each month. This doesn’t count as an income, and the company has no interest on them. So if you lose your job and your income falls, so will your payment to Eve, and so will your interest, Wilkes said.

Eve charges 0.25 per cent of the mortgage to cover those costs. If the interest rate is similar to what you were paying on your primary mortgage before the refinance, you will save as much as one percentage point on your interest costs, Wilkes said. This could lower your total payment by 30 per cent to 40 per cent. But it isn’t a surefire income stream.

You’ll probably only use it if you have access to an emergency fund, and have other savings to fall back on, Wilkes said.

“Let’s say your house is in the shower of your mortgage,” he said. “Then that’s not a problem, but for someone that doesn’t have a lot of other cash, it’s another kind of set back.”

The Canadian government recently launched a program to encourage developers to build houses in underserved areas, along with measures to encourage first-time buyers to take on a mortgage for the first time.

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