It’s an exciting time when you finally find the perfect home to purchase for yourself or your family. It could be that you love everything about it including the fact that it fits your price range. The only problem is that it needs some improvements or upgrades. Most likely you have delegated all or almost all your savings to serve as the down payment and you won’t have any extra liquid funds to pay for those renovations. What do you do?
Purchase Plus Improvements Mortgage
As a Realtor in Nanaimo, I work with many different mortgage brokers/specialists who keep Realtors like me, up-to-date on the different borrowing options available to our clients. The one I hear about most often is the purchase plus improvements mortgage.
Please note that I am not a mortgage specialist and would recommend that if you are interested in receiving the full details on this option please speak to your lender. Not all buyers will qualify for this mortgage option, but it certainly makes sense to check into it.
In the meantime here are some basic details on the what this mortgage is all about;
According to Mortgage Architects, a prospective borrower would follow these five steps to secure a purchase plus improvements mortgage:
- Contact a mortgage broker or specialist to apply for a pre-approval to determine your maximum borrowing amount.
- Find a house that you wish to buy and get a general idea of what renovations need to be done and what they are going to cost. The purchase price plus the cost of the renovations cannot exceed your maximum approval amount. A lender will require written quotes detailing the work to be done as well as the cost of these renovations.
- Once your offer is accepted you will provide a copy of the accepted offer and the written quotes for the work to be done to your broker. They will have the lender approve the mortgage with the cost of the improvements included in the mortgage.
- Once you have completed your purchase and taken possession of your new home you can begin your renovations. The lender will have your lawyer hold the additional funds in trust until the lender confirms that the work has been completed. You will notify your broker that the work has been completed and the lender will send out an appraiser to complete an inspection to verify that the work has been done as per the quotes that were supplied.
- The lender will receive the inspection report from the appraiser and validate that the work has been completed as per the quotes provided. They will instruct the lawyer to release the funds to you, so you can pay the contractors.
What types of improvements would be considered?
The types of renovations that will be considered must be perceived to add value to the home. Some renovations that add value to a home are new flooring, new or updated bathrooms and kitchens.
A purchase plus improvement mortgage is a great solution if you are buying a new home that needs some small yet significant improvements but will not work for a home that requires a large renovation such as a fixer-upper.
If you’d like additional information on mortgage options, please contact me and I would be happy to refer you to a mortgage specialist.