Sometimes, you find a home you want to live in, but you know it’s going to be a fixer-upper. At that point, the question becomes a matter of budget. If budgeting makes the decision tough for you, there is good news. There are mortgages that can help you finance – at least in part – the renovation of a residential home. These are called “purchase plus improvements mortgages” or “renovation mortgages” in Vancouver.
Vancouver renovation mortgages can be a huge bonus when it comes to home buying. They can give you the cash flow needed to make a home feel like it’s yours, while also increasing its value. The payback costs simply get folded into your monthly mortgage payments. This is usually more advantageous than taking out a separate renovation loan.
However, there are some intricacies and rules to follow with a purchase plus improvements mortgage. Plus, whether or not you’ll qualify for one can depend on several factors. A good Vancouver mortgage broker can not only help you apply, they can make a case for your approval. Even better – an independent mortgage broker can shop the market to land you a stellar deal for the financing you need.
If you’re ready to get into the Vancouver home-buying market, and you want to renovate at the same time, we encourage you to get in touch. Our mortgage specialists can guide you through the process. They can also research the best mortgage programs available for your buy-and-redesign project.
Looking to refinance an existing home, or use its equity for a renovation? We help with that too! See this page for more info.
Below, we’ll answer some common FAQs about purchase plus improvements mortgages in B.C.
How does a purchase plus improvements mortgage work?
To apply for a purchase plus improvements mortgage, you’ll need to start with a mortgage pre-approval, per the normal process. This will tell you what type of house you can afford to buy, both before and after it is renovated. In other words: your pre-approval amount will always include the cost of renovation. You can’t get more than that base amount.Read more
The difference with a purchase plus improvements mortgage is that the lender will provide the cash to pay for renovations. This can be much cheaper than taking out a line of credit to do this. You’ll pay it all back as if your home was valued at its post-renovation price. Your interest rate and down payment percentages remain the same. This means less cash out of your pocket, and more put into the property that will likely increase its value over time anyway.
To say it another way: your down payment percentage will be calculated including the renovation cash amount. That means that if your house cost is $500K, and your renovations come to $40K, you’ll pay as little as 5% down on $540K.
An important point here is that any home you mortgage this way must be occupied by you. It can have attached rental units (up to four), but you must live in at least one of the units. Renos can be done on any unit with the cash.
What is the process like when obtaining and using a purchase plus improvements mortgage?
After your mortgage pre-approval, the next steps can be somewhat time-sensitive. So, you’ll need to work closely with your real estate agent, mortgage broker and contractor during these stages. They are:Read more
(Click on an item below to read its details)
Step 1: find the house you want to buy
When you find the house you want to renovate, you’ll make an offer through your real estate agent, and wait to be accepted. At this point, you should have a very good idea of what it will cost to make repairs or changes to the property. You can ask a contractor for a rough, but realistic, initial quote.
Step 2: the seller accepts your offer, then you get a professional, written quote for renovations
After the seller agrees to your offer, the contractor will need to come to the house to provide an accurate, detailed quote, with a solid plan, for the work that needs to be done. This can’t be ‘willy nilly.’ It has to be professionally done, and written down, so the lender knows you are serious.
Step 3: have your mortgage revised
The renovation quote is then taken to your mortgage broker, who runs it by the lender (such as a bank). The lender takes a look at your plan, and decides whether or not to revise your mortgage, so that it includes your renovation costs.
Step 4: the lender sends funds to your lawyer for holding
When your lender agrees to revise the mortgage, it becomes a purchase plus improvements plan. The funds for your renovation are sent to your lawyer, where they are held until an inspection on the renovated house is passed.
Step 5: move in, begin renovation and finish on time
In the meantime, you take possession of the house, and begin renovation work. Many contractors will ask for payment or deposits before the bank releases your approved funds. You can arrange to pay out-of-pocket with lines of credit, some savings or otherwise. Or, if you find a willing contractor, they may do this on the premise of being paid by the lawyer when all is said and done.
No matter who is put on hold for payment, they won’t be waiting long; these renovations have deadlines associated with them. They typically must be completed within 90 to 180 days.
Don’t forget; you’ll be a homeowner at this point. You’ll be paying your regular, monthly mortgage bills, based on your total borrowed amount. Also, in some cases, mortgage insurance will still apply, on top of your mortgage fee, even under this program. You’ll need to factor these details into your budget, especially when considering your contractor’s payment schedules.
Step 6: arrange for an inspection
You notify your mortgage broker or lender that the renovation on the house has been completed. The lender will send their own appraiser or inspector to check that everything has been done to spec.
Step 7: the lawyer releases your reno funds
When the lender’s requirements are satisfied, they will advise your lawyer to release the funds. Money can be used to pay your contractor, or to reimburse you for the fees you already paid towards the project.
From here on out, you pay your monthly mortgage payments as planned, and enjoy your new, picture-perfect home!
Ready to get started? Have more questions? Contact us to get the ball rolling!
How much can I get for a renovation with a purchase plus improvements mortgage?
With a Vancouver purchase plus improvements mortgage, renovation costs on your property can’t exceed more than 20% of the purchase value of the home. However, it is rare to get 20%; most people get 10%, or a limited cap. A good mortgage broker can help you get higher approvals.Read more
Generally, most people are given a $40K allowance for renovations.
To find out how much you can likely get, we recommend speaking with a mortgage broker, who can look more closely at your case.
We encourage you to contact us today, so we can recommend financing that meets your needs:
Work with a Vancouver mortgage specialist to find the best renovation deal for your home!
As we’ve seen above, a purchase plus improvements mortgage allows you to add the cost of renovation into your home’s purchase. In essence, the bank can lend you an amount that would consider the finished renovation value of your home, instead of its pre-renovation value. This can return higher resale value, while also giving you a comfortable home to live in – one that’s just the way you like it.
The way to get a hold of these types of mortgages, is to work with an experienced, independent mortgage specialist. Our team works hard to customize the experience for each home buyer we work with. In the case of renovating, we can advise you on the most logical, financial steps needed to achieve your goals. This may include applying for a renovation mortgage, or it could mean another path. Either way, we’ll find a solution that works for you.
Contact us today, and we’ll get started on your file right away!