A Purchase Plus Improvement mortgage in Canada is basically a mortgage loan that covers not just the price of the house you are buying but it adds money for the cost of improvement as well. Essentially, this type of mortgage allows you to borrow extra money to help you make necessary repairs and spruce up the house. It can be a great way to pay for home repairs, and if you are careful you can get some of the interest you pay back on your taxes. Many people in Canada have been benefiting from these loans. Here’s how to buy a property with this type of mortgage.
There are two main ways to apply for a mortgage approved for purchase plus improvements in Canada.
DIY
The first involves applying on your own, this is the DIY approach. If you prefer, you can also apply by visiting your current bank and their closest branch to ask for a Purchase Plus Improvements mortgage. You will need to provide the appropriate documents to be considered for this mortgage loan. There is usually a bank representative on standby to be able to assist you, else you will need to wait for your turn. Keep in mind that Purchase Plus Improvements mortgage is a specialized product that not every bank and credit union offers this product to their clients. The typical procedure for any mortgage-related inquiry at a bank is to check for your identification, and credit report. Bear in mind that every time you visit a different bank, that bank representative will have to do a hard check against your credit bureau that deducts points from your credit score. This is a must, even if you have all your documents in place and reviewed by the bank representative during the meeting.
Professional
The second approach is to work with a professional mortgage broker who understands about Purchase Plus Improvements product in great depth and knows which lender is the most likely to extend the approval to your application. Likewise, a mortgage broker will need to verify your identification and review all of your financial documents in order to qualify you for the mortgage loan. One thing different than the bank representative route is that the mortgage broker will only need to check your credit bureau once and the credit report is acceptable by all lenders. Therefore protecting you from multiple hard hits that repeatedly deduct points from your credit scores.
Property Value and Project Plan Matters
When applying for a purchase plus improvement mortgage in Canada, it is important to note that the property value before and after the renovation is determined by an independent licensed property appraiser that is appointed by the lender. Neither yourself as a homeowner, nor the mortgage broker has the influence to drive up the property valuation on the appraisal report. The licensed appraiser will determine the fair market value of your property accurately.
Once the appraiser determines the value of your property, the next step involves working with a mortgage lender to come up with the terms for the loans you are applying for. These typically include the mortgage loan for the purchase and additional loan with disbursement schedule and conditions for the improvements project.
Prior to the approval, the mortgage lenders will want to know what you want to get done with your property and how much the total project will cost. Your contractor should be able to give you some direction regarding these. If you have any questions, do not hesitate to contact your mortgage broker before you make your final decision about a Purchase Plus Improvements home loan. It is important to understand that the mortgage lender will expect that the improvement project follows a project plan and is executed by a third-party licensed contractor to make sure things are on schedule. So shop around to get the best general contractor for your home improvement project.
Why do people need to know about this program?
Purchase Plus Improvements mortgage simplifies a home purchasing mortgage and a home renovation loan into one mortgage from one lender.
Some people mistakenly believe that they cannot obtain a Purchase Plus Improvement mortgage because of past credit problems. However, a mortgage broker has access to numerous lenders with varying lending requirements. Chances are one of these lenders has the leniency to accommodate your specific financial situation and grant you the mortgage loan that you seek. If you have had credit problems in the past, work with a mortgage broker to avoid wasted time and effort with rejections from incompatible lenders.
A few things you need to know about this program:
- This is available for homebuyers who are buying or building a house that will become their principal residence.
- The down payment amount is based on the after-renovation value of the property.
- Homebuyers can qualify for this program with a minimum down payment of as low as 5% for a property below $1 Million.
- Lenders will need to approve the home renovation with quotes and the contractor prior to commencing work.
Will this product work for pre-construction properties too?
Yes, this product works for purchasing pre-construction properties as well. But this is where details matter.
Purchase Plus Improvement mortgage is for home improvement costs done after you take possession of the property.
That means the upgrades cost that you ordered during the pre-construction period is not eligible in this program.
Speaking of pre-construction properties, those who are interested in pre-construction financing, you want to check out this video below that unpacks in detail about 100% pre-construction financing.
Jermaine Hinds, Mortgage Broker
Jermaine Hinds is a licensed mortgage broker for mortgages across Canada.
Your mortgage options are powered by Matrix Mortgage Global (Brokerage Lic. #11108). This means you gain access to more than 100 different lending partners who are ready to offer you various mortgage solutions, including mortgage renewals, refinancing, second mortgages, home equity loans, bridge loans, and other specialized mortgage products.
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