What is Purchase Plus Improvements?

Many people who are out house shopping are looking for the perfect place to call home. You may find that yard that is perfect but the kitchen does not work. Or, you find the kitchen works but the bathrooms or flooring are so outdated it makes you forget how good the rest of the house is. You have saved up your down payment but you do not have the funds to do any upgrades. There is a program to help you with these scenarios. The Purchase Plus Improvements program is designed for you to add the renovations right to your mortgage from the start. It’s very easy to use and help you get into the home that is just right for you but needs a tweak or two.

This is how it works.

Lets say you have found that perfect home but the kitchen does not have the cupboard space or even has that extra wall that makes the kitchen seem so small that it isn’t going to work for you. You write an offer and you get your accepted offer at $300,000. You get a quote from a home renovator that shows they can renovate this kitchen to the kitchen you want for $30,000. Your purchase price would be sent off to the mortgage lender at $330,000. The down payment that you would be required to come up with is $16,500 (or 5%). Your mortgage would start off at $313,500 (plus default insurance). This just helped you get into your home with your kitchen for $16,500 instead of $45,000 (the $15,000, 5%, down payment on the original $300,000 plus the $30,000 renovation).

So whats the catch? There are some things to keep in mind when doing this type of mortgage. On possession of your home the full mortgage money is funded to the lawyer. In our scenario, Of the $330,000, $300,000 will be used to purchase the home from the seller. The remaining $30,000 will be held at the lawyers until the renovation work is complete. This means that you have to use a contractor that is willing to do the work and get paid on completion or you have to fund the renovation as the contractor needs it. You can not switch contractors after mortgage approval. You will be required to forward the lender a quote from the contractor at the start of the mortgage process. If you forward a quote from ABC contractor for $30,000 and just before the work is about to start 123 contractor says they can do it for $25,000, you can not switch. The mortgage is approved for ABC to do the work and they will payout to ABC only. Sure there can be some exceptions on this but you would need to get the change approved with the lender before you switch. There may be an inspection that needs to be done. This would be a cost that would be extra and the price can vary based on the size of the renovation.

One thing to keep in mind is not all renovations should go onto a mortgage. If you are doing a renovation and the total is going to be under $10,000, perhaps an unsecured line of credit would be the way to go. Keep in mind adding the renovation to the mortgage means that the loan is for as long as the mortgage is. In most cases this turns into a 25 year loan. Smaller renovations can be paid off a lot faster.

There are many great renovation specialists in the Red Deer area that can help you out with these types of renovations. Call, text or email me with any questions and I can help you get the mortgage that suits your needs.

Scott Bourke



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