As the housing market is starting to pick up, people are looking to buy their first home, second home or maybe just fix up their first home. I’ve been asked by a few people in the recent weeks about whether they can make their mortgage more to do some renovations to their new home.
The answer is yes! Well, sort of. Mortgage brokers and banks cannot just put in a random number to the bank for a new purchase and say “the client’s going to do some work on the house when they buy so they need a little extra money”. Unfortunately that doesn’t fly with the banks but there is a way to get a little extra funding to help you do some of the things you visualize when you are looking for a new home.
This program is called a Purchase Plus Improvements. It offers a way to help buyers add or fix up things that they wouldn’t otherwise be able to do when they buy a new home. Most people put all their money towards their down payment and closing costs and have little left over for the kitchen upgrade they would love to do.
How this program works is as follows. When you are considering putting an offer on a home but would like to, for example, put in new flooring. Take along a measuring tape to your next viewing. Get some measurements and take them to Home Depot (or place of your choice) and get some quotes for the flooring you require. When you write your offer, give me those quotes along with your accepted offer to purchase. From there, I calculate your new “purchase price” based on the accepted offer PLUS your renovation quotes. Your 5% down payment (or however much you have decided to put toward your purchase) is calculated on this new amount. I submit to the lender as a Purchase Plus improvements and they can approve you for that new flooring you want to do.
A few things to note about this program is it does have its limits like anything else. Here are a few of the basic guidelines:
- The improvements must be something that add value, you cannot include appliances in this quote
- There is a maximum of the greater of 20% of the initial purchase price or $40,000, if we go past this value, it becomes more of a construction draw mortgage as it’s a much bigger project
- The work must be done before the money is advanced (the lender will require proof the work has been done before the lawyer can advance you the money).
- You can do the work yourself, you do not have to hire a contractor
- You have 90 days to complete the work (with some exceptions for season work)
It’s as easy as that! On possession day, the lawyer will request the full mortgage amount from the bank and pay the offer price to the seller, then hold the remaining funds (for your improvements) in trust until the work is done. Some banks will require and inspector to go in and confirm the work is done, and some will require receipts to confirm the work is done.
If you are doing the work yourself and you don’t have the cash up front, you can comfortably put it on a credit card or line of credit knowing in 90 days (or less) you will be able to pay it off in full. If you have a contractor doing the work for you, once you have their invoice, they will be paid in full. Contractors are usually pretty good about doing the work upfront if they know the bank is footing the bill and they aren’t going to be worried about chasing people around for cash.
This is something to keep in mind when you are looking for a new house, maybe you find one with an ugly kitchen or bathroom but you love the rest of the house, here’s your solution. Maybe the basement is unfinished or maybe you need a deck? These are just a few of the things you can add to your mortgage and make your new home just what you’re looking for!
For more details on this program or any other products I can offer, don’t hesitate to give me a call!
Naomi Hamm, Mortgage Broker & Partner
Office: (204) 727-2177
Cell: (204) 724-7290