There’s likely no better time to fix up your home than when you buy it. None of your stuff is in the place yet and you have a blank canvas to work with. Besides, there’s always a few tweaks anyone has to do when first moving into a new home like painting, caulking or changing the kitchen countertop. Why not go all-out at the same time and create the house of your dreams? Using a purchase plus improvement mortgage can help finance your renovation dream.
The purchase plus improvement mortgage is a loan for the renovation that you take out at the same time as your mortgage and allows you to spread out the cost of renovation throughout the lifetime of your mortgage. The interest rate for the renovation is the same as your mortgage, currently almost at historic lows.
This renovation loan is particularly helpful in hot Canadian markets such as Vancouver and Toronto real estate where homes are at record-high prices and buyers often need to borrow funds to make home improvements after they purchase the property.
The Purchase Plus Improvement Mortgage
Canadian lenders offer this loan, called a variation of “purchase plus improvements financing” program, to homeowners who choose to renovate upon purchase. You can get a loan up to 95 per cent of the future value of your home. Any residential property under $1 million that has up to four units is usually eligible and long as one unit is owner-occupied. Condominium units are also eligible for this loan program.
How it Works
You can borrow up to 10 per cent of the improved value of your home – the price your home would sell for after you spiff it up. It’s not any harder to qualify for, and you can still put down as little as 5 per cent down. That 5 per cent, however, is also of the improved value of your home.
Let’s say you buy one of the many Toronto condos on the market for $500,000. You plan to renovate the kitchen, which would increase the home’s value to $550,000. So, you can take out a loan that is 10 per cent of $550,000 and must put down at least 5 per cent of $550,000. Therefore, your loan would be $55,000 and your down payment would be a minimum of $27,500.
Plan Your Renos
To get this loan you need to know exactly what renovations you’re going to do. You need written quotes from contractors that detail the scope of the work and the costs. That way, your lender can approve the plan and can accurately calculate the size of the loan you need.
You get the portion of the loan for renovations after a lender representative goes to your home in person to confirm the work took place. The money is held with your real estate lawyer in the meantime and advanced after confirmation. It’s important to have enough cash to pay the contractors, have a credit card with a low introductory offer, or negotiate with your contractors to pay them later.
Although this program may seem complicated at first, it’s no more involved than any sort of renovation. There is slightly more paperwork, but it far outweighs having to save up for years to renovate or have to overlook fixer-uppers because you don’t have the cash on hand.
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