Buying a home is a very exciting time in a person’s life, but it can also raise so many questions. There are many different ways to go about doing so, and many types of mortgages and loans to decide between. That is why it is so important to have a good and trustworthy real estate agent or mortgage broker in your corner. One of the many kinds of mortgages is the purchase plus improvements mortgage, which can be helpful if the new home that you choose is not turnkey or move in ready.
Read on to learn more about the purchase plus improvement mortgage and whether or not it would be a good choice for you!
What Is a Purchase Plus Improvements Mortgage?
First things first, what is a purchase plus improvements mortgage? You may have also heard of this loan type by its shortened name—purchase plus mortgage. This is a mortgage where the costs of any renovations to the property are included in the total mortgage approval amount. This makes it possible for a homebuyer to start their renovation project right away, but pay off the cost of them over time.
Typically, you are allowed to borrow the cost of the renovations up to a certain percent, as dictated by the lender. The specifics, such as this percentage or the amortization time frame, will be dependent upon the lender you work with to purchase the property.
Benefits of a Purchase Plus Improvements Mortgage
A purchase plus improvements program may not be the best choice for every homebuyer. Just like other mortgage types, there are pros and cons, so it is something you will need to decide for yourself—and perhaps with the consul of your lender and real estate agent or mortgage broker.
Read on for some of the benefits of going with a purchase plus improvement mortgage, rather than a traditional mortgage or separate loans for renovations and for the home purchase price itself.
Lower Interest Rates
By building the costs of your renovations into your mortgage, you can benefit from lower interest rates than you may have if you went with a loan for renovations alone. This can add up to save you a lot of money over time as you start to pay off the renovations costs!
Only One Loan
Having one loan for both renovations and your home purchase can be one less thing to worry about! It is easier to apply for the combined loan than to apply for two loans that may not even be with the same lender, for instance.
Easy to Manage
As mentioned above, a purchase plus mortgage is two loans bundled into one mortgage payment, essentially. This makes it easier to manage, and less to worry about. You only have to pay back one lender, on the one loan, and there are regimented steps that are taken in order to release the money and get the contractors paid for their work.
How Does a Purchase Plus Improvements Mortgage Work?
Typically, a purchase plus improvements mortgage works by following a few steps. First, of course, the property is found and the renovations or improvements to be made are determined. Then, a rough estimate of cost for all of these improvements is required. Your lender will usually then approve you based on the price of the house as is. You will need to have contractors come in to take a look at the scope of work and provide firm quotes for the cost of renovations. The lender can amend the amount of the mortgage to include these renovation costs once they are provided by the contractors.
After you have completed the sale of the property, you are all set to begin renovations immediately. A bank representative will verify that the renovations were completed as agreed upon, and then the money for these will be released to pay the contractors.
Frequently Asked Questions
Can you add renovations to a mortgage when purchasing Canada?
Yes, it is possible to add renovations or home improvement costs to your mortgage when you are purchasing a home. This is called a purchase plus mortgage, which allows you to factor in the cost associated with the renovations into your mortgage. That way, you are able to begin renovating right away but can then pay off these renovations over time and at a better interest rate than with some other types of loans. It brings you one step closer to having your dream home faster!
What is a purchase plus improvements mortgage?
A purchase plus improvements mortgage, or a purchase plus improvements program, as it is sometimes shortened to, is a type of mortgage that functions to help qualified homebuyers with renovations that they plan to make to the property that is being purchased. These home improvement costs or renovation costs are built into the mortgage instead of having the homebuyers pay for the renovations up front or with a separate loan. This can be helpful because it often has a lower interest rate than other loans.
Can you add the cost of a renovation to a mortgage?
If you already own your home and have a mortgage, and are considering making some renovations to the property, there are ways to add the cost of the renovations to your mortgage. These renovations costs would essentially be added to the total loan amount to create one combined balance for the mortgage. Similarly, if you are considering purchasing a property but know there are renovations that you want to make, then you can buy the property with a combined mortgage that includes the renovation fees. This mortgage would be referred to as a purchase plus renovations mortgage.
Can you get a mortgage and a renovation loan at the same time?
Yes, there are a few different ways that you can get a mortgage and renovation loan at the same time when purchasing a property. Often, you can get a combined loan that covers both of these functions, rather than applying for and then having to pay two separate loans. Some homebuyers get an open ended mortgage, which helps to fund the necessary repairs or renovations on a fixer upper. Another kind of loan is the purchase plus mortgage, which bundles renovation costs and the loan to buy the home itself into one lump amount.