You are in the search for the perfect home when you find one with the perfect location - it is near your office, it is also near the kids' schools, it is near the shopping centre too, and all amenities are nearby. You are thrilled but your enthusiasm is curtailed as the house of your dreams is not ready to move-in. You may not be aware but a purchase plus improvements mortgage comes in handy in such cases.
How does a purchase plus improvements mortgage work?
Most people aren't aware that they can actually add the renovation costs to their mortgage. Simply speaking, a purchase plus improvements mortgage is one that covers the purchase price of your home along with any additional expenses towards the home renovation costs. In such mortgages, the lender will let you borrow additional cash for the necessary renovations so that the house is ready to move into.
Once you have zeroed in on a home of your liking, you need to determine the exact renovations it needs such as a new roof, new flooring, kitchen renovation, furnace etc. You need to then estimate the cost of these renovations. For this you can contact a contractor to provide a quote. Pro tip: Get quotes from three contractors so you know you are getting a fair price. The next step will be to speak to your broker and tell him the renovations you'd like to make to the home and he will apply for the financing approval including the renovation costs of the home. Post-this, the regular home-buying process shall commence i.e. making of an offer and closing the deal for the home.
Post the conclusion of the sale deed, you, the new homeowner needs to take possession of their new home. Meanwhile the lender will make sure that the list of renovation costs reaches the lawyer who will hold that cash. The contractor, on the other hand, can begin the renovation process of the home and would ideally complete the said work in approximately 90 to 120 days.
Post completion of the renewal, the lender sends a representative to inspect the house. Once this representative approves of the said renovations, you will get the money to be paid to the contractor.
Looking a little beyond purchase plus improvements mortgage
But you must know there are other means to finance a renovation too. If you have the money you can pay cash for these renovations as this lowers the lending cost of the home. But not all are in such a solid financial position as home purchase is followed by requirements such as mortgage default insurance tax, down payment, land transfer fees, etc. So, some may even opt to fund their renovations using a line of credit.
If you have set your eyes on a property that needs renovation and are looking to opt for purchase plus improvements mortgage, and have any doubts or concerns, do not hesitate to write to us at LendX.