Paula Siemens

This spring, many Canadians looking for a home will find themselves in a common predicament: they've found a property that suits them, but it needs some costly immediate upgrades. 

Many buyers add the costs of initial major renovations into their mortgage, instead of racking up credit card bills or selling investments to pay for the refurbishments.  Known as "purchase plus improvements" financing, this type of mortgage covers the sale price of the home, plus any renos that would increase the value of the property, such as finishing a basement or redoing the kitchen. 

It's important to know that lenders will withhold the estimated cost of the renovations and only forward the funds after an inspector verifies the project is completed.  Timing is critical: here are some steps to ensure you don't have any unexpected financial surprises when you purchase a home to renovate:

Step 1: Mortgage pre-approval

Arranging a pre-approved mortgage not only protects you if interest rates increase, it also gives you a clear price range for your new home.

Step 2: Obtain cost estimates for upgrades

Once you have found a home, you need to get written quotes from licensed contractors on the renovations you plan. These quotes will be used as the estimate for renovation funds that will be forwarded to you after the projects are completed.

Step 3: Mortgage application

When you are applying for the mortgage, your lender will add the estimated costs of the renovation into the lending agreement.  For example, with a 5% down payment, your mortgage broker would apply to a lender for 95% of the "as improved" market value, which will be higher than the actual purchase price. 

Step 4: Finalize purchase

Your Realtor and mortgage broker can walk you through this part of the process, and can recommend ways to increase the chances that your offer on the home will be accepted.  The funds for renovations will be sent to your lawyer "in trust" when the mortgage closes. 

Step 5: Complete upgrades

The lender will "hold­ back" funds for the renovations until the work has been completed and inspected, at which time the contractor can be paid.    

Homebuyers should consult with their Invis Mortgage Consultant to learn about their full range of options when purchasing a property that needs upgrades.

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• Shop the market to find you the best rates and mortgage products, whether you are purchasing a home, refinancing or renewing your mortgage.
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Paula Siemens

Mortgage Consultant

Phone: 604-351-7438

Fax: 604-648-9106

Email: psiemens@direct.ca

Web: www.yourbcmortgagebroker.com

902-777 West Broadway Ave., Vancouver, BC V5Z 4J7