A “purchase plus” mortgage is a great solution for individuals seeking a property that requires TLC or customization. Perhaps you’ve found a “nearly perfect” property that needs some tweaks. Common examples include a new kitchen, flooring, bathroom or windows.
A purchase plus mortgage allows you to include the cost of planned renovations in your purchase price (mortgage amount) at the time of approval by borrowing up to 20% of the post-renovation value of the home. Clients find this helpful for cashflow planning, and they enjoy the simplicity and peace of mind that comes from knowing renovation funds are secured at the time of purchase. It takes the guess work out of how, and when, renovations will occur.
- Home buyers that want to purchase a new home or individuals that want to refinance
- Favourable rates and the simplicity of one mortgage payment
- The ability to start improvements immediately after taking possession of your new home
Conditions vary by lender, although here are general guidelines:
- Some lenders will offer an amortization period of up to 30 years on purchases at 95% “loan to value” (meaning a 5% down payment is required)
- Most lenders cap at 4 units, requiring one unit to be occupied by the owner as their primary residence
- New construction or existing construction is permitted
- Standard income / employment verification applies
- The purchase price plus renovation amount cannot exceed your maximum mortgage approval limit
- Obtain a mortgage pre-approval from your broker so you know how much home you can afford before you start shopping
- Once you find a home, you’ll need to quantify the cost of renovations and the post-reno value through the provision of detailed quotes from legitimate contractors
- Once your offer to purchase is accepted, you’ll supply it and the renovation quotes to your broker so you can be approved for a mortgage that includes renovation costs
- Once you take possession, you can start renovations. At that point, your lender will instruct your lawyer to withhold renovation funds until the lender confirms the work has been completed. When renovations are completed, you’ll notify your broker and they’ll send an appraiser or lending representative to inspect the property, and verify renovations are complete per the quotes.
- Once your lender receives the inspection report, assuming it’s satisfactory, they’ll instruct the lawyer to release funds to you for payment to your contractor(s).
We’ve helped many clients turn their new home into their dream home using a “purchase plus improvements” mortgage. If you’re interested in TLC or upgrades, talk to us about your options before you start shopping.
You Dream It. We Finance It.