When looking at purchasing a new home, or real estate in general, the old adage for what needs to be considered is “Location, location, location”. While there are certainly other factors, this largely holds up as a primary concern. In a perfect world, the search for a home ends with a property in the ideal location, with a building that meets all of your needs; but in reality, the available properties in this area may need a little “TLC” to become your forever home. This is where a Purchase Plus Improvements Mortgage may be able to help. If this rings true, read on to find out the “Things You Need to Know About a Purchase Plus Improvements Mortgage”!
1. You Can Purchase a Home and Add Improvement Costs into the Mortgage
As described above, a purchase plus improvements mortgage allows you to include the cost of renovations or updates into your mortgage. This can be perfect when the home you are buying is in need of some repairs or alterations to suit your needs.
2. You Are Able to Borrow up to 10% of the Value of the Home
Capping at $40,000 with most lenders, this type of mortgage allows for you to take advantage of the “improved value” of your property for renovations. This means that the loan will not only include the price of the home, but it will also include the renovation costs, and ultimately takes into account the future value of your home once the renovations are complete. With this number in mind, to maximize the value of your purchase plus improvements mortgage, we recommend searching for good-looking fixtures of reasonable quality and cost to ensure a strong return on investment.
3. A Written Quote is Required Regarding the Work you Intend to do
Say you want to replace the kitchen floors, or upgrade the basement into a legal suite, it is crucial that you bring in a contractor to provide a quote outlining the costs for revamping the space. Bringing in a contractor to renovate your home can help you save time & money, and helps to ensure the work is completed by licensed and insured tradespeople with a high degree of professionalism. A reputable company will give accurate quotes for the type of renovations required, as well as a reasonable timeline for completion.
4. Not Everything Can Be Included
While fixtures and finishing’s can be rolled into a Purchase Plus Improvements Mortgage, not everything falls under this umbrella. Things like appliances, furniture, and some other items often purchased during a renovation may increase the value of the home, but are not considered the same way new floors, cabinets, or a new bathroom would be. The general rule is that “fixtures” can be included, but anything that can easily be moved, would need to be funded separately.
5. How It Works
While the basic concept is easy to understand, the actual process is a little more complicated, and should be done with the help of your mortgage broker. What the Purchase Plus Improvements does, is take into consideration the “Improved Value” of your home. An appraisal is required to confirm the current value, as well as an estimate of the future value of the property once the quoted work is complete. The bank will then lend using the higher/’as improved’ value. What this means is that if you are buying a home for $500,000 with an “Improved Value” of $540,000, the minimum down payment would be calculated on the higher amount.
6. It's Not A Blank Cheque
This is the most common item that comes up in our experience. When completing this type of mortgage, the bank does not provide the funds up front. They fund the mortgage based on the normal purchase price, while the additional “improvement” funds are held in trust with your lawyer. To have these funds released, a second appraisal confirming that the quoted work has been completed is required. This means in most cases; you would need to fund the renovations at least in part from your own resources and would then be able to replenish these funds when the funds held in the trust account is released from the lawyers.
A Purchase Plus Improvements Mortgage can be the perfect way to make your new property truly your own. It could be the ideal program for your next purchase, but it is not always the best option. As with any large investment, its important to work with a team of experts that can guide you in the right direction. At AHA Mortgages, we pride ourselves in providing the right advice, so whether you’re looking for a Purchase Plus Improvements Mortgage, or simply want to ensure you’re making the right choice, our team of experts can help find the right mortgage for your needs. Get started today by contacting us at admin@ahamortgages.ca or with a completed contact request form on our website!
