Wed Apr 10 2024

How Purchase Plus Improvements Mortgages Work

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For many prospective homebuyers, finding the perfect home often means compromising on certain features or settling for a property that needs some TLC. However, with the innovative Purchase Plus Improvements mortgage program, Canadians can purchase a home and make necessary upgrades or renovations right from the start, turning their dream home into a reality.

What is a Purchase Plus Improvements Mortgage?

A Purchase Plus Improvements mortgage is a specialized financing option that allows homebuyers to finance both the purchase price of a property and the cost of renovations or improvements in one convenient mortgage. This program enables buyers to borrow additional funds to make upgrades immediately after purchasing the home, eliminating the need for separate financing or dipping into savings.

How Does it Work?

Here's a breakdown of how the Purchase Plus Improvements mortgage works:

  1. Select Your Desired Property: Identify a property that requires improvements or renovations to meet your needs and preferences. This could include anything from updating the kitchen and bathrooms to installing new flooring or enhancing energy efficiency.
  2. Obtain Quotes for Renovations: Get estimates from contractors or renovation experts for the cost of the desired improvements. This will help determine the total amount you'll need to borrow in addition to the purchase price of the home.
  3. Apply for the Mortgage: Apply for a Purchase Plus Improvements mortgage through a lender. During the application process, you'll need to provide details about the property, the proposed renovations, and the estimated costs.
  4. Appraisal: The lender will conduct an appraisal of the property to determine its current value as well as the estimated value after renovations. This assessment helps establish the total loan amount, including both the purchase price and renovation costs.
  5. Closing: Once the mortgage is approved, you'll proceed with the purchase of the home. The additional funds allocated for renovations will be held in trust by your lender until the work is completed.
  6. Renovate: After closing, you can start the renovation process. Use the funds from your Purchase Plus Improvements mortgage to cover the cost of upgrades or repairs. Ensure that the renovations comply with the lender's guidelines and local building codes.
  7. Completion and Verification: Once the renovations are finished, the lender may conduct a final inspection to verify that the work has been completed satisfactorily. Upon approval, any remaining funds from the renovation budget will be released.

Financial Example:

Let's illustrate how a Purchase Plus Improvements mortgage could work for a homebuyer purchasing a $500,000 property with $50,000 in planned renovations:

  • Purchase Price of Home: $500,000
  • Estimated Renovation Costs: $50,000
  • Total Mortgage Amount: $550,000

Assuming a down payment of 20% ($100,000), the buyer would need to finance the remaining $400,000 through a mortgage. The lender would disburse the $50,000 renovation budget as needed throughout the renovation process, with any remaining funds released upon completion.

Benefits of Purchase Plus Improvements Mortgages:

  1. Convenience: Consolidating the purchase price and renovation costs into one mortgage simplifies the financing process for homebuyers.
  2. Immediate Upgrades: Buyers can make desired improvements immediately after purchasing the home, without the need for additional financing or delaying renovations.
  3. Increased Property Value: Renovations can enhance the value of the property, potentially resulting in a higher resale value and increased equity.
  4. Flexible Options: Purchase Plus Improvements mortgages offer flexibility in terms of the types of renovations allowed, giving buyers the freedom to customize their homes to their preferences.

In conclusion, the Purchase Plus Improvements mortgage program provides an excellent opportunity for homebuyers to purchase a property and transform it into their ideal home with customized upgrades. By leveraging this innovative financing option, buyers can embark on their homeownership journey with confidence, knowing they can create the living space of their dreams right from the start.