Here’s Everything to Know About Purchase and Improvement Loans
Consider the following scenario:
you've been looking for a home and have seen numerous, each time acquiring a better picture of your perfect home.
Then there's the perfect house. However, there is a snag: the property is not yet ready for occupancy, and you lack the finances to complete the necessary renovations. A loan for the purchase and improvement of a home may be advantageous.
Understanding Purchase Plus Improvement Mortgages
A CMHC Mortgage Consumer Survey found that 37% of respondents were unfamiliar with purchase plus improvement mortgages. This only goes to show that nobody knew you could include remodelling charges in your mortgage payment - usually the maximum you can be lent is $50,000 and you must be able to qualify with your income..
A purchase plus improvement mortgage in Canada covers both the purchase price and the cost of renovations. Essentially, this means that your lender allows you to borrow money to repair and prepare your home for sale. Borrowing costs will be combined into a single payment, making it easier to buy and refurbish a property.
Learning the Process
When you discover the house you want to buy, you may find that it requires a new furnace, new floors, fresh paint, or a new kitchen. For this, you must determine the cost of any renovations and the time it will take to do them. A contractor may be able to help by providing a quote. Obtain three separate offers from independent providers to ensure great service at an affordable price.
Following the initial step, inform your chosen broker about the improvements you want to make to the house. Your broker will arrange for financing to cover the cost of the renovation.
After you make an offer and buy the house, close off the transaction and obtain possession of the property, the lender will reimburse your lawyer for the agreed-upon renovation costs. Your contractor may begin the renovations requested by your lender right away. Typically, the work is completed in at most four months.
Following renovations, lenders will send an inspector to inspect your home. Once the loan is granted, your lender will pay your contractor.
Paying for a Renovation
A mortgage for home acquisition and improvement is not the sole option. If you have the funds, you can also pay cash, which will help you save money on your mortgage. However, not everyone can afford to buy a property and save money after paying for a down payment, land transfer fees, mortgage default insurance tax, and other closing costs.
Some people may use credit payments to finance their home modifications. Because the interest rates on credit lines and credit cards are substantially higher than the cost of borrowing a purchase plus improvements mortgage, these solutions are best suited for people who can afford to pay off their remodeling costs before paying interest.
Funding a Home Improvement Project
To finance improvements, take out a home equity line of credit (HELOC). A HELOC, as opposed to a purchase plus upgrades loan, is secured by the homeowner's equity. These loans, which have lower interest rates than credit lines, are a cost-effective option to finance home improvements, especially in hot real estate markets where the owner's home would appreciate in value.
A HELOC is a loan secured against your home that allows homeowners to borrow money in lump sums with fixed interest rates. Like purchase plus improvement mortgages, HELOCs have lower interest rates than other types of credit. Moreover, it can be utilized for a variety of purposes.
Because first-time homeowners lack the equity that existing homeowners have, a purchase plus improvements mortgage makes more sense for them.
THE BOTTOM LINE
If you find that your dream home needs some work, prepare yourself for the additional costs. Fortunately, there are low-cost solutions to improve and raise the value of your property. To identify the best course of action, always talk with your broker. They will guide you through the complexities of mortgage options and nuances.
Do you want to learn more about mortgage financing in Canada? Level Up Mortgages support consumers in attaining success in their mortgage journey with e-learning, coaching, and world-class bilingual advice. To assist consumers in refinancing or purchasing new homes, we work with premier banks and best-rate mortgage lenders in British Columbia and Ontario. Get in touch with us today!
See what you qualify for or contact Paul to get your pre-approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
See Our Google Reviews in BC & Ontario: bit.ly/GoogleReviewLUM ⭐️⭐️⭐️⭐️⭐️