Many buyers add the costs of initial major renovations into their mortgage, instead of racking up credit card bills or selling investments to pay for the refurbishments.
Known as “purchase plus improvements” financing, this type of mortgage covers the purchase of a home plus any renovations (up to 10% of the purchase price) that would increase the value of the property, with the top three improvements being: kitchen, bathroom and painting.
If you are looking for a new home you understand that timing is critical. Here are some steps to ensure you don’t have any unexpected financial surprises when you purchase a home through this program:
If you are looking for a new home you understand that timing is critical. Here are some steps to ensure you don’t have any unexpected financial surprises when you purchase a home through this program:Step 1: Mortgage pre-approval
Arranging a pre-approved mortgage not only protects you if interest rates increase, but it also gives you a clear price range for your new home. Knowing what you can afford and comfortably handle takes a lot of stress out of house shopping. If you need a mortgage broker just direct message me and will put you in contact with a couple of them for you to decide who you would prefer to work with.
Step 2: Obtain cost estimates for upgrades
Once you have found a home, you will need to get written quotes from licensed contractors on the renovations you have planned. These quotes will be used as the estimate for renovation funds that will be forwarded to you after the projects are completed. Ideally, having these quotes prepared prior to removing the “subject to financing” will alleviate lots of headaches closer to closing.Step 3: Mortgage application
When you are applying for the mortgage, your lender will add the estimated costs of the renovation into the lending agreement. For example, with a 5% down payment, your mortgage broker would apply to a lender for 95% of the “as improved” market value, which will be higher than the actual purchase price.
Step 4: Finalize purchase
Your Realtor and mortgage broker can walk you through this part of the process and can recommend ways to increase the chances that your offer on the home will be accepted.
Step 5: Complete upgrades
The lender will "hold back" funds for the renovations until the work has been completed and inspected. These funds for renovations will be sent to your lawyer “in trust”. Once you have the inspection completed and all of your receipts to present to your lawyer, they will release the remaining funds to pay for the improvements.
The right mortgage professional will walk you through the process of getting quotes, preparing them for the lender and going over the estimate of closing costs for this type of mortgage. As with any mortgage, having a mortgage professional work with you every step of the way will help reduce that home purchase stress.
This is a great tool to use during a hot market as you open yourself up to some of the homes that need improvement and may get passed over by others that don't know about this method or simply want a turn key purchase. One additional benefit is that your new home is customized to exactly how you want to have it!
If you would like to know more about this program or have any questions related to real estate feel free to direct message me at haze-hartwig@coldwellbanker.ca or call/text to 604-522-4777 or stop by our Facebook page at www.facebook.com/HazeRealty