When most purchasers buy their home, little thought is given into what renovations or upgrades that will need to get accomplished in order for the home to be up to their comfort level. Even those who have thought about what needs to be done to upgrade the home often wonder just how they will get these renovations done in a cost effective way.
There is a little known feature in a mortgage transaction called a purchase plus improvement mortgage that allows a purchaser to buy the home, renovate it, and then have those renovation costs added to the mortgage after the fact. The reason this option is rarely discussed before one buys a home is because most mortgage professionals dread the thought of the extra paperwork and extra steps this type of loan requires. However, a purchase plus improvements mortgage can be one of the best ways to get your home, make the changes needed to make it comfortable and add value to the home!
How it works:
In a simple way, a purchase plus improvments mortgage works much like this:
- You make an offer to purchase the home at a certain price as you would normally.
- You get a professional contractor or professionals trades into the home to give you quotations on the work being done.
- You give a copy of those quotes to your mortgage broker so that he/she can send those quotations, along with the offer to purchase to the lender for approval on the purchase as well as approval on the increased value of the home.
- The lender approves or declines the loan AND the increased value of the property.
- If it is approved to be worth the renovations that you are putting into the home, the closing date comes along and you will be required to put a down payment equal to the improved value of the home. (ie: A home is purchased for $100,000 and you are putting 5% down payment, it would be $5000. You aks for $10,000 in renovations to be added to the value of the home making it worth $110,000 and the lender agrees, your new down payment would be 5% of $110,000 which is $5500).
- The lender funds enough mortgage money to allow you to purchase the home on the closing day, while holding back the improvement money.
- You take posession and then begin the renovation process over the next 30-90 days.
- Once the renovations are complete, the broker arranges for an inspection of the work to be done and sends the inspection report to the lender.
- The lender releases the renovation money to your lawyer with respect to The Construction Lien Act
- Your new mortgage payment is reflective of the extra renovation money, thereby eliminating the need to borrow from credit cards, lines of credit or loans. Your cash flow is protected.
So as you are shopping for the perfect home, remember that perfection is in the eye of the beholder, and a purchase plus improvement mortgage can help!
Thanks for reading!
Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671