Renovating to get that Dream Home

It’s an all too familiar scenario for potential home buyers: you find a home with an ideal floor plan in the neighbourhood you had hoped for!   The excitement grows as you walk in the front door; you wander into the living room and let out a disappointed sigh: its carpet. You were wishing for hardwood.

You keep walking until you stumble upon the small, outdated kitchen and you walk away from what you thought may have been your dream property.   You are disappointed, frustrated and yet repeat the process over and over again as your search continues.

Low mortgage rates have created excitement in our housing market.   Home buyers often feel a sense of urgency to buy while mortgage rates are low and are often more likely to enter into bidding wars, panic, overspend, and settle for something that doesn’t really suit their needs.  It doesn't’t have to be like that – one alternative is to buy a fixer-upper for a great price and update it to suit what you’ve been hoping for all along.

For buyers willing to look past the bruises of a “not-so-perfect” home, a Purchase-plus-improvement mortgage can allow a qualified buyer, to borrow additional money from a mortgage lender to pay for your renovations. A mortgage lender takes into account the improvements made by the new owner and gives credit based on the increased value of the upgraded property.

People who find that the house they really want is either overpriced or is simply not available can benefit from this mortgage product and transform a lower priced home into their dream home.    Another option for homeowners is for those who want to take advantage of today’s low rates but do not want to relocate.   They can refinance their mortgage to include the cost of renovations or use the equity in the home they currently own to secure additional financing at today’s great low rates.  

Kitchens, bathrooms and garages usually provide the homeowner the biggest return on their renovation investment, but a purchase-plus-improvement mortgage can be used for anything that adds value to a home.

Think this type of product may work for you?

Here’s how a purchase-plus-improvements mortgage works and the steps you need to take:

1. Visit your local mortgage agent and have them find you the best rate for a mortgage pre-approval.   This will give you confidence in knowing what the price is you can qualify for.
2. Once you find a fixer-upper, put in an offer, make sure it’s understood that the bid is subject to appraisals, inspections and cost of renovations.
3. Have the home appraised for it’s “as-is” value, as well as for what it may be worth post-renovations.   Make sure from the home inspector that there are no hidden surprises or additional costs.
4. Gather written cost estimates from qualified contractors on the upgrades.   Take the estimate you decide on to the lender.
5. Apply for a mortgage that includes the cost of upgrades.   If the home is appraised at $400,000 but requires $50,000 worth of renovations, you will have to secure a mortgage for $450,000, in addition to the minimum five per cent down payment.
6. If the mortgage is approved, close the offer with the seller.   The funds for the renovations will be sent to the lawyer “in trust” as the work is completed.
7. Start your upgrades. Remember, the cost of the work is paid up front by the buyer.   Take into account that depending on the work being done, it may add days, weeks, or months to your move-in date.
8. Renovations are completed.   Funding, which has been held back by a lawyer until the work is completed and inspected is released and your contractor can be paid.   If renovations are more extensive and complex then simple cosmetic upgrades, the advances are staged, meaning the buyer receives them in stages as the work progresses.