Broker vs. Bank / Documents / Lenders / Purchase / Qualifying / Rates & Terms / Refinance / Rules / Uncategorized

Is a purchase plus improvement mortgage for you?

SM1_canLARGEYour realtor opens the door to the house you think just may be the ideal home for you, decent condition and located in a great neighborhood you have had your eye on for a long time. Once your eyes adjust to the dark interior, you see to your horror, chocolate brown carpet everywhere including in the kitchen and bathrooms and ugly old wallpaper on just about every wall! Is this an immediate deal breaker or do you check out what options are available to somehow make this work for you?

One option is to apply for a line of credit. They’re an easy way to access low interest cash quickly but they’re not necessarily the smartest way to go, at least not according to David Chilton, the author of the Wealthy Barber.

“People cannot resist lines of credit,” he said in a speech at a conference of the Canadian Pension & Benefits Institute. “And the worst combination is a line of credit and a home renovation – once you renovate one room, the other rooms pale by comparison, so you go on to the next room and it’s a never-ending cycle of renovation as you get deeper and deeper in debt.”

A second, less common route you could take is to apply for a purchase plus improvement mortgage. This option covers the sale price of the home, as well as any renovations that would increase the value of the property.

With this type of mortgage the lender will provide additional financing to improve the property. A buyer could make upgrades to the property such as new paint, flooring, carpets, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.

The improvements planned must add value to the house or the lender and Insurance Company may not allow them to be financed. They may also put a cap on the dollar value they will allow to be put into the property

How does it all work? Borrowers must provide a quote from a reputable contractor at the time their mortgage application is submitted to a lender for approval. The contractor will provide a quote for the work to be done and the costs associated with it. Once both the lender and the insurance company approve the improvement amount, it is added to the mortgage total.

On closing day, all mortgage funds are advanced to your lawyer which includes the amount allocated for renovations, who will hold onto it until the renovations are 100% complete – this means that you won’t get the money until the work is done. Do be aware you will likely have to access additional cash so initial deposits can be paid to the contractor and work can begin. When the renovation is complete, the lender sends an appraiser to your home to confirm the work outlined on your quote is completed in a professional manner. Once confirmed, the lender will authorize your lawyer to release the improvement dollars to you and you can pay the contractor.

With a lot of first-time buyers trying to find creative ways to get into an affordable home, the improvement plus mortgage provides the ability to look at homes that need a little TLC. Why pay more for a house that someone else has renovated into their dream home, when you can include the renovation costs in your mortgage loan and renovate to make it yours?

Questions? Contact the MortgageGirl via email, Phone 780-433-8412, Facebook, Twitter to discuss your options. Jackie is a former banker turned Mortgage Broker with over 35 years of experience. #expertadvice #benefitfromexperience

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