Picture it, you've found THE perfect house and location. But it doesn't have a finished basement, or the kitchen is outdated. What do you do? Do you buy it and hope to tackle DIY projects in the future? Keep searching? Or, do you purchase the perfect house and include renovations or improvements in your mortgage right from the start?
Yes, that is a thing!
Purchase Plus Improvements
- Find your house and make an offer.
- Connect with a contractor to provide you with a quote for the improvement - ask around for a contractor referral, both myself and your realtor will have suggestions for you.
- Your improvements could include a heat pump, new windows or doors, new flooring, kitchen or bathroom upgrade, finishing unfinished rooms, new deck, etc.
- Once there's an agreement between buyer and seller, your realtor will send the purchase agreement and improvement quote to your Mortgage Professional (me?).
- Your Mortgage Professional will include the quote with the purchase price in the application and combine everything into one mortgage.
Saving Interest
Combining the price of the house and the improvement is likely your best option for simplicity and interest rate. You will likely save a lot of interest including improvements in your mortgage compared to paying for it on a credit card or line of credit.
Convenience
You can time your improvement shortly after closing and move in once it's completed. This could be more convenient than living in the home and completing projects in the future.
Big Money
Paying for improvements out of your savings, combined with the down payment and closing costs may equal to big money that you may not have or want to spend up front. When combining the improvement with your mortgage, you just have to come up with the 5% of the total up front.
Know Your Options
Different mortgage lenders have different policies for Purchase Plus Improvements. Some lenders require you to pay for the improvement yourself, then submit the receipt to be reimbursed. Other lenders require just the invoice for improvements rendered. This may make a difference depending on your ability to pay for the improvements before reimbursement. Discuss this with your Mortgage Professional.
Time Constraint
Because the improvement quote must be submitted to be combined with the purchase price at time of application, there's typically a time constraint to consider. There's a period of time (usually 5-10 business days) to secure financing, so your contractor must be available and able to provide you with a quote in a speedy manner.
Military Postings
The time constraint may pose an additional challenge for military postings due to the short nature of a House Hunting Trip (HHT). If you are planning on a Purchase Plus Improvements transaction during an HHT, be sure all professionals involved are ready to act quickly to ensure everything is completed within your timeline.
The Process
- Make an offer, seller accepts your offer.
- Contractor provides improvement quote.
- Realtor sends purchase agreement and improvement quote to your Mortgage Professional.
- Mortgage Professional submits mortgage application with combined purchase price and improvement value.
- Closing date arrives, funds for the purchase price are processed between your lender, lawyer and the seller.
- Get your keys.
- Either move in and complete improvement, or complete improvement and then move.
- Submit paid receipt or invoice (according to lender policy) to your lawyer.
- Lawyer releases additional funds for the improvement value to you.
- Note - You will have a specific period of time to complete the improvement after closing, typically 12 months. If you do not complete the improvement and submit for reimbursement before that time, the improvement funds will no longer be available to you.
When timing allows, Purchase Plus Improvements is a great option and can be relatively simple with support from your Mortgage Professional and a reliable contractor.
Already own your home but need to consolidate? Check out my blog about Mortgage Refinancing.
Got questions? I'm here to answer them!
Sarah Nixon-Miller, Mortgage Broker
Toll-free Across Canada (rings direct to my cell) 1-844-315-6609
sarahnm@mortgagegroup.com