Home Renovation Loans: Knowing Your Options in Canada
Did you know that you can get a loan to renovate a home that you are purchasing?
You can add the costs to your mortgage using what is called a Purchase Plus Improvements mortgage. Of course, this only applies to properties you intend to purchase in Canada.
How Does a Purchase Plus Improvements Mortgage Work?
Basically, a purchase plus improvements mortgage is a type of mortgage lending that covers both the base value of the property and any renovation costs. The plan for specific renovations will have to be laid out to determine the total coverage your lender can provide on top of the purchase price of the house.
Once you get approved, you can expect the total cost to get rolled into one payment. Of course, lenders will set a maximum percentage that they can loan for the cost of renovations. Once you have ownership of the property, you can immediately get started on any improvements and changes.
If you already have an existing mortgage in place, you will need to speak to your lender about refinancing. Assuming your debt-to-income ratio is balanced, the maximum extra mortgage you can borrow for Purchase Plus Improvements is generally up to 20% or $100,000.00 of the property value.
Steps to Getting a Purchase Plus Improvements Mortgage
It should go without saying but the first step is to settle on the property you plan to buy. Then, you need to mark down what renovations you want to have done so you can estimate the costs. You can get some quotes from professional home contractors to get a good idea of what to expect.
Then, you should speak to your mortgage provider to talk about getting the necessary financing for both the home and the renovations. You will need your credit history, identification, employment records, and proof of income to make sure your pre-approval process goes smoothly. Once you are approved, you can make a bid on the property.
Let’s say your offer works out and you close on the property. Once you are considered the owner of the home, the renovation budget from your lender will now be on hold with an approved lawyer or trust. Get all the renovations done and then the lender will release the money so you can pay the contractors.
After this, agreed-upon payments to complete your mortgage will proceed normally.
Other Alternatives for Home Renovation Loans
If you just want to renovate your new home but don’t necessarily want to go the purchase plus improvements route, you can use a credit line to fund the renovations and stick to a standard mortgage solely for the purchase value of your home.
You can also set aside a cash fund solely for innovations if they aren’t too major or if you have the cash on hand. If not, you can also go for a HELOC or Home Equity Line of Credit. The latter is similar to the purchase plus improvements mortgage except your loan is secured against your home’s equity. HELOCs usually have low fixed interest rates.
THE BOTTOM LINE
If you’re looking to buy a property that just needs a little extra love and care but you don’t have the money on hand to fix it up, these options can be very helpful. With a solid credit score, you should have a better chance of getting your application approved. With this method, you can build up a house with tons of potential and turn it into your dream home.
For home buyers that need reliable alternative lending in Canada, connect with us at Level Up Mortgages. We simplify the mortgage journey for buyers, so see what you qualify for and contact Paul to get your pre-approval.
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
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