How to Use a Purchase Plus Improvement Mortgage to Finance Your Dream Home
When you find a home that’s almost perfect but needs a few updates, a Purchase Plus Improvement mortgage could be the ideal solution. This type of mortgage allows you to finance both the purchase of the home and the renovations in one mortgage. It’s a great option for buyers who want to invest in a fixer-upper or add personal touches to their new property.
What is a Purchase Plus Improvement Mortgage?
A Purchase Plus Improvement mortgage lets homebuyers in Canada finance the cost of necessary or desired renovations along with the home purchase itself. Whether you’ve found a home that needs a new kitchen, bathroom upgrades, or even structural repairs, this type of mortgage allows you to roll the renovation costs into your overall mortgage, saving you the hassle of taking out a separate loan or using high-interest credit to cover improvements.
This product is available through most major lenders in Canada, including banks and mortgage brokers, and can be used for various types of improvements such as roof replacements, window upgrades, or even finishing a basement.
How Much Can You Borrow?
The amount you can borrow for improvements depends on the total value of the property after the renovations are completed. Most lenders offer up to 10% of the home’s value after improvements, with a maximum of $40,000 for renovations.
For example, if your home is valued at $500,000 after improvements, you can borrow up to an additional $50,000 for renovations. However, if your renovation plans exceed this cap, you may need to look into a construction mortgage, which is generally harder to qualify for and often carries a higher interest rate.
What Kind of Renovations Are Covered?
The improvements financed through this mortgage must add value to the home. This includes necessary repairs, energy-efficiency upgrades, or aesthetic improvements that will enhance the home’s resale value. Common renovations covered by a Purchase Plus Improvement mortgage include:
- Kitchen and bathroom upgrades
- Roof replacements or repairs
- Window and door replacements
- Adding or upgrading flooring
- Painting, tiling, or other interior/exterior finishes
- Basement finishing or renovations
- Structural repairs or modifications
- Energy-efficient updates, such as insulation or HVAC system upgrades
It’s important to note that cosmetic upgrades (like changing furniture or adding non-permanent fixtures) may not qualify for financing under this mortgage.
Get a Quote Early!
One of the most crucial steps in securing a Purchase Plus Improvement mortgage is having a detailed renovation quote ready before you make an offer on the home. Lenders will need this information to determine the additional funds to include in the mortgage. Without a quote, the approval process can be delayed.
The contractor’s quote should include:
- A clear description of the planned work
- Itemized costs for each renovation task
- The estimated completion time
Having this information prepared in advance can speed up your mortgage approval and ensure a smoother process.
Timeline for Completion
Once the mortgage is approved and the purchase is complete, you’ll have a set timeframe to complete the renovations. Most lenders give a maximum of 120 days to finish the work, although some may offer extensions of up to a year, depending on the complexity of the project.
It’s important to complete the renovations within this timeframe because the additional mortgage funds will be held back until the work is done. Only after the lender confirms that the renovations are complete and that the home’s value has increased will the funds be released. Failing to complete the work on time could result in a reduction of your mortgage amount, and you might lose access to the funds designated for improvements.
How Does This Affect Your Down Payment?
Your down payment for a Purchase Plus Improvement mortgage is based on the total purchase price of the home, including the renovations. So, if your down payment is 5%, it will apply to the total cost (purchase price + renovation amount). This helps keep the overall cost more manageable for buyers who want to make improvements without breaking the bank.
Benefits of a Purchase Plus Improvement Mortgage
- Convenience: You can finance both the purchase of the home and renovations in one mortgage, simplifying the process.
- Cost-effectiveness: Instead of taking out high-interest personal loans or using credit cards to fund renovations, you can roll the renovation costs into your mortgage at a lower interest rate.
- Customization: This mortgage allows you to turn a fixer-upper into your dream home without waiting to save up for improvements after the purchase.
- Increased Property Value: Renovations can significantly boost the value of your home, which can be beneficial if you plan to sell it in the future.
We’re Here to Help!
Applying for a Purchase Plus Improvement mortgage can seem complicated, but it doesn’t have to be. We’re here to guide you through the process, from helping you secure the right contractor to ensuring your mortgage is approved quickly and efficiently.
If you’re ready to explore this option or have more questions about how to finance your home purchase and renovations, contact us at Mortgages for Less! We’re here to make the home-buying and renovation process as smooth as possible.
