Have you found your ‘almost’ dream home? Perhaps you love the neighbourhood, the size of the lot and the number of bedrooms, however the outdated kitchen is holding you back from making an offer. This is where a ‘purchase plus improvements’ mortgage comes in.
A purchase plus improvements mortgage allows you to factor in the cost of renovations into your mortgage. This allows you to renovate now, and pay off the cost of those renovations over time at a better interest rate than other types of loans.
The Purchase Plus Improvements Process:
- Your Broker will arrange for an appraiser to determine both the current value of your home and the future value of your home after the proposed renovations are complete.
- Your minimum down payment is the lesser of:
- The appraised price plus the total cost of improvements; or
- The future value of the home
- The renovation costs are factored into your total mortgage amount, and are paid with your monthly mortgage payment.
How are the Renovations Paid?
The cost of the renovations have to be approved by the lender and are then paid up front by you, the homeowner. Once all of the renovations are complete and inspected by an appraiser, the funds for the renovation are reimbursed to you by your lender.
You purchase a home appraised at $350,000. You determine that you would like to put $30,000 worth of renovations into the home to help turn it into your dream home. With renovations, your total mortgage amount is $380,000. This means you are able to put a five percent down payment of just $19,000 to purchase the home and renovate right away!
Questions about the purchase plus improvements process? Leave a comment below or contact our office, and we would be happy to help.