Buying the Right Home – 8 Steps for Purchase Plus Improvements

A purchase plus improvements mortgage can help make this a reality by allowing you to renovate the property into your new home.

When you purchase a property you want it to feel like your home.

Here is everything you need to know about how a purchase plus improvements mortgage works.

Purchase Plus Improvements

1) When you write an offer to purchase you will need to get contractor quotes right away (within 24-48 hours typically).

2) The lender will use the quotes to have an appraiser determine the value of the property “as is” and “as complete”. They do this to make sure the property will be worth your purchase price + renovation costs.

3) The lender will approve the mortgage based on the appraisal (which is why quotes are needed quickly)

4) You complete any remaining due diligence and once ready make your home purchase final (this is waiving conditions or removing subjects)

5) You complete the purchase of the property and the lender will give you a mortgage based on your purchase price (no renovation money is given).

6) You must complete the renovations outlined in the quote within 120 days with your own money. (credit card, line of credit, family gift or contractors who are ok getting paid after the work is done).

7) Once the work is complete (typically within 120 days of you purchasing the home) the lender sends the appraiser back out to the property to confirm the work was completed.

8) Once the appraiser confirms the work is complete the lender will release the renovation funds to you.

In the end you will have a mortgage that includes your original purchase mortgage and the renovations funds with a single payment.

Common Questions About Purchase Plus Improvements Mortgages

Here are the most common questions we are asked about purchase plus improvement mortgages.

Q: Can I do the renovations myself?
A: Generally speaking most lenders require the work done by a third party but a couple lenders will allow you to do the work yourself.

Q: I do not have the money to pay for the renovations, what can I do?
A: You can look into a smaller down payment, using unsecured credit to cover the renovation costs(IE a 0% interest home depot loan), a cashback mortgage, family gift or a contractor who will accept payment after the work is complete.

Q: What if I need permits for the work?
A: Requiring permits for renovations is not an issue with most lenders but you must be aware of the timelines for permits. A common trick is to request permission from the seller to apply for renovation permits before closing (generally at subject/condition removal). This generally requires an authorization letter from the seller.

Q: What if it takes longer than 120 days to complete the improvements?
A: Lenders will generally give an extra 30 days if you are nearing completion of the work. If you believe you will need longer there may be lenders that grant a longer time frame.

Q: What if I need/want to change the scope of the renovations? If so, what happens?
A: If possible it is best to avoid this but if required we would get an updated quote, request the appraiser update the appraisal and then request the lender to approve the scope of the renovations. It is possible for substantial changes the lender could cancel the renovation portion of the loan.

Q: What if I do not complete the work on time, renovate differently than the quotes ect?
A: The lender will cancel the renovation loan and not release the renovation funds to you.

Q: Are there any extra costs to a purchase plus improvements mortgage?
A: Generally speaking there are no additional costs other than the appraisal and second visit to confirm the work is complete.

If you have any questions or need any help you can reach me at Keaton@kbmortgages.ca

Find out more

As mortgage brokers we are on your team. Our job is to understand your needs, plans and wants in order to understand your mortgage needs. We then look at a number of lenders to find the best products and solutions for you.

During our time in the industry we have learned a number of tips and tricks to help you save money and to pay of your mortgage faster.

If you have any questions or would like a customized mortgage plan let us know!

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