Are you looking to make improvements or renovations to a new home you are purchasing?
Consider Purchase plus improvements, as you can add the costs of improving or renovating your home to the mortgage!
How it works
When you submit your mortgage application, you provide a written quote from a licensed contractor that details the renovations/improvements along with the estimated costs. Your application is then submitted and approved for a mortgage with the purchase plus improvements.
After this is complete, the lender will inform your lawyer to hold the amount of renovation work. After the work has been completed and confirmed by an appraiser, the lender will then inform the lawyer to release the amount of money for the improvements to pay the contractor.
Here is an example to help better demonstrate how this process works.
You have found a house for $300,000, you have a 5% down payment and would like to add 25,000 worth of improvements to the house.
Purchase price of house= $300,000
Contractual estimate of renovations = $25,000
Lender and insurer agree that improvements to the house will increase the value of the house from 300,000 to 325,000.
Total mortgage = 325,000 X 95% = 308,750 plus applicable insurer premium
Your lawyer will then register your mortgage for the amount mentioned above, but be instructed to hold on to $25,000.
Your contractor then completes the work within 90 days.
After the work is complete, an appraiser will then confirm completion of the improvements and your lawyer will then be instructed to release the $25,000 hold, back to you to pay the contractor.
Purchase plus improvements make everyone a winner! The lender is happy, as they now have a mortgage on a recently improved house; and the purchaser will be happy because they had $25,000 worth of improvements done to the house!