Understanding Purchase Plus Improvements Mortgages for Home Renovations in Canada

Once you buy a home, to make it truly yours many people dream of home renovations. A purchase plus improvements mortgage offers a effective way to finance both the home you want AND the renovations of your dreams! We will dive into more detail about what a purchase plus improvements mortgage is, the benefits, how to qualify, and next steps.

What Is a Purchase Plus Improvements Mortgage?

A purchase plus improvements mortgage helps buyers who need additional funds for renovations on their newly purchased home get access to those funds. Essentially, this mortgage merges the home’s purchase price with the estimated costs of improvements. For example, if you buy a house for $300,000 and plan to spend $20,000 on renovations, the total mortgage would be structured at $320,000. This method makes it easier for buyers, as you won’t need separate loans for renovations. An important thing to note is that lenders will usually only let the renovation portion be 10%-20% of the purchase price so you need to have renovations that are within that scope.

Funds for the renovations are not released until all renovations are completed. This means that homeowners need to be able to cover the renovation costs in the interim until the entire project is complete!

Benefits of a Purchase Plus Improvements Mortgage

Streamlined Financing

One significant advantage of a purchase plus improvements mortgage is the simplicity it brings. By merging renovation costs with the mortgage, you can avoid multiple loan applications. The additional funds that were added for the renovation portion are simply added to the mortgage total.

Increased Home Value

Home renovations can lead to a substantial rise in property value. For example, upgrading a kitchen can yield a return on investment of over 70% according to the National Association of Realtors. When using a purchase plus improvements mortgage, homeowners can strategically use their funds for projects such as modernizing the kitchen or adding energy-efficient windows, which can improve both aesthetics and functionality, adding value to the property over time.

Flexibility in Planning

The flexibility of a purchase plus improvements mortgage means homeowners can decide beforehand what renovations will best fit their needs. If you need the basement developed or want a full kitchen renovation, this mortgage lets you choose. That being said, with a purchase plus improvements mortgage you will only be reimbursed for work that was quoted and agreed to by the lender so it's important to only do the work that was approved, otherwise the funds will not be released.

Long-Term Financial Management

Financing renovations through a purchase plus improvements mortgage can simplify monthly budgeting. Unlike personal loans or credit cards, which often have higher interest rates, this mortgage comes with lower monthly payments. Homeowners can thus better manage their finances over time, as renovation costs are included in their overall mortgage plan, ensuring peace of mind.

Qualifying for a Purchase Plus Improvements Mortgage

Eligibility Criteria

To qualify for a purchase plus improvements mortgage, lenders look at the same things as they would in a traditional mortgage application. Your credit score, income, debt, and savings will all be evaluated. In addition the lender will ensure that you qualify for the new mortgage total post renovations!

Property Appraisal

A property appraisal is an important part of the qualification process. Lenders evaluate both the home's purchase price (current value) and the projected value after improvements. For example, if your renovation plans total $50,000, the appraised value after renovations must support this higher amount. Having a detailed renovation plan can help this appraisal.

Choosing the Right Lender

Not every lender offers purchase plus improvements mortgages, which is why our team is here to help! Gert Martens Mortgage Team works with many lenders who offer a purchase plus improvements mortgage option. We can find the lender that's right for you!

Challenges to Consider

Underestimating Renovation Costs

Homeowners sometimes underestimate renovation projects, which can lead to budget strain or not enough funds to cover the work. By working with qualified professionals and collecting all of the quotes beforehand hopefully this problem can be avoided.

Time Management

Renovations can often take longer than planned. To prevent disruption, build some flexibility into your project timelines. For instance, if you expect a kitchen remodel to take four weeks, consider allowing six to account for possible delays. With a purchase plus improvements mortgage lenders have a maximum amount of time (90-120 days) that they require the work to be completed in. Be mindful of the timeline and the completion date. If the work is not completed by the deadline or you decide to not proceed with the renovations, the held money will be released back to the lender and your mortgage will remain at the pre-work total.

Next Steps

If you want to discuss your particular situation or are ready to start the mortgage application process our team is here to help! Contact us today to get money for your home renovations!

Final Thoughts

A purchase plus improvements mortgage is a great option for those looking to finance home renovations alongside their home purchase. By weighing out the benefits and risks and planning carefully you can maximize your investment and transform any house into a place you love!

As you begin your home renovation journey, doing thorough research and consulting with Gert Martens Mortgage Team will help you make an informed choice. We are here to help with all of your mortgage needs including your purchase plus improvements renovation mortgage!