I bet there have been several times when you have walked through a property and loved a lot about the home. Maybe it was the yard, the layout or the location. Yet, as with most homes you see changes that could be made to make it – YOURS. When I was a realtor here in my community of St. Albert, my favourite homes to show were the ones that needed a little TLC. If the home had good bones then often a renovation was a great way to increase the value of the home fast and to get that perfect fit of space for your family.
Before you walk away from a fixer-upper with a sense of disappointment, perhaps now is the time to consider seriously looking at the “must haves” and investigating if it is possible to get the home you envision. It is highly possible that you can get that renovation done and have the costs rolled into your mortgage. Sounds interesting – then read on.
There are two major questions to consider:
- Do you have the appetite to take on a renovation – not the work itself but the time and attention improvements need?
- The financial capacity to finance a renovation in the short term?
Those are the magic words when we are talking about Purchase Plus Improvements mortgage product – SHORT TERM. A Purchase Plus Improvement mortgage product is a way for you to make some important changes to the property and have the costs built into your mortgage right from the start.
**yes a high ratio – 5% down payment offer can access a purchase plus improvement mortgage**
What is a Purchase Plus Improvement Mortgage Product:
This mortgage product is for owner occupied purchase only, with a combined value of the agreed upon purchase price plus maximum 20% of the current value of the property or $40,000, whichever is the lesser of the two.
Example: Agreed Upon home price $385,000
Available Home Improvement Value: $ 40,000
Total Mortgage will be: $425,000
What type of renovation can be included?
All the renovations must reasonably increase the value of the property. General rule of thumb:
Update existing:
- Update/renovate Kitchen
- Update/renovate Bathrooms
- New flooring
- New Paint
New additions:
- Finish/Renovate Basement
- New Patio/deck
- New energy efficient windows/doors
- Addition of garage
What does the home owner need to know?
- Work will need to be completed within 120 days of possession date.
- Work quoted is the work that will be reimbursed. You cannot change what you renovate after mortgage approval.
- The value of the improvement funds you have requested will be held in trust your lawyer. Once all renovations are complete and are confirmed, the money will be released to you.
**Most important – you will need to be able to fund the improvements up front. **
How do most people pay for the renovation?
For the most part people will utilize a line of credit, cash in investments or will borrow from family – knowing that the money will be returned to them with days of confirming renovation is complete.
I knew a couple who had a line of credit and a credit card, with a reward program attached. They would use the credit card to pay for the material etc., gain the rewards points and then pay off the credit card with the line of credit. Once the renovation was complete, the lawyers released the funds on hold and they immediately paid off their line of credit. She loves her new kitchen and calls it the “little Kitchen that could” as she was able to pay for a good portion of their Mexico vacation with the points she gained by the renovation.
What does the lender need to approve the renovation costs to be added to the mortgage?
The lender is looking to make sure that you understand the work that is going to be done and the cost. They want to make sure you are planning, to that end they will require:
- Provide 2 detailed quotes in writing for the renovations at the time we are asking for mortgage approval.
How can my realtor help?
The most stressful part of this equation is securing quotes for the work. Not all renovations require access to the property, however some may. Assisting with the coordination of quotes is important:
- Accurate dimensions of rooms to assist with quotes (flooring, paint, kitchen cabinets can often be quoted without access to property)
- Negotiating access to the property for an accurate quote process (Bathrooms, window/doors and full basement renovations often need contractor access to property)
- Recommend contractors if needed.
- Home inspection reports are great ways to source out potential hidden problems if a renovation is being considered
**Note that the mortgage broker will require the written quotes to secure an approval. We recommend contacting contractors immediately following the offer acceptance and facilitate property access if necessary. **
Taking time to research and consider a home that needs a love and attention can be one of the best ways to increase value in the home in a very short period of time. As you plan home showings with your realtor, think about the access to potential renovation funds you may have and ask if it is possible to view a home below your current pre-approval amount.
Purchase Plus Improvements is not a good fit for everyone, however many do not even realize it is an option. Call me today to answer any questions you may have. (780) 236-5714.
