What is a purchase plus improvements mortgage in Canada?
If you didn’t know that you can add renovation costs to your mortgage, you aren’t alone.
A purchase plus improvement mortgage in Canada is a mortgage that
covers not only the purchase price of the home, but also includes
additional money to cover renovation costs.
According to a CMHC Mortgage Consumer Survey, 37% of mortgage consumers didn’t know about purchase plus improvement mortgage options.
Essentially, your lender allows you to borrow additional cash to help you spruce up your home and make the necessary improvements to make it move-in ready. The cost of borrowing will roll into one payment, making it easy to purchase your home and renovate it once the deal closes.
How do home renovation loans work?
First, you have to find the home that you’d like to purchase. Maybe it needs a new furnace, new floors, coats of paint, a kitchen renovation, or other such improvements. Determine exactly what renovations you need (and want) and obtain an idea of what they will cost. A contractor can provide a quote to make this process as smooth as possible. It’s recommended to get 3 quotes from different contractors to ensure you’re getting quality service and a fair price.
Speak with your broker and explain what improvements you’d like to make to the house. Your broker will line up financing approval that will include the cost of renovations.
You will then go through the standard home buying process. You make an offer and eventually close on the home.
After the sale concludes and you take possession of the home, the lender will forward the agreed-upon cost of your renovations to your lawyer, who will hold that cash in trust. Your contractor can start the renovations that were agreed upon with your lender right away. The work typically must be complete within 90 or 120 days.
Once your reno is complete, the lender will send a representative to take a look at your home. Once approved, your lender will provide the money needed to pay your contractor.