Can You Get a Mortgage for More than the Purchase Price for Renovations

You can get a mortgage for more than the purchase price for renovations by applying for a purchase plus improvements mortgage. This mortgage would give you additional funds to cover renovation costs for the home you’re buying. You will need to obtain quotes for the renovation work, complete the work and have it appraised by the lender.

Often consider a purchase plus improvement mortgage, this type of mortgage provides a home buyer with extra funds to cover renovations. When buying a home, some homes may be in need of some TLC. A home inspection is always to be done when buying a home – so the inspector will point on required work in the home.

Once you purchase the home, you may need to do some work before you move in (or while you are in the home). Depending on the work, home renovation can be costly. I’ll explain the process of getting a mortgage for more than the purchase price so you can renovate your home.

How to Get a Purchase Plus Improvements Mortgage

A purchase plus improvement mortgage will allow you to borrow from the lender the equivalent of 20% of the after-renovation value of your home. You will first need to obtain a pre-approval from the lender, and reasonably estimate the post-renovation value of your home. This is because the pre-approval amount should include the renovation costs.

When your offer is accepted by the seller, you need to bring in experts to create quotes. Your lender will need copies of these quotes. You will still need to place at least a five-percent down payment on the renovation costs. An example of a purchase plus improvement mortgage is the following:

Accepted Offer: $540,000

Quoted Renovation Cost: $39,000

Final Purchase Price: $579,000

Minimum Down Payment (5%): $28,950

Mortgage Principal: $550050 + CMHC Default Mortgage Insurance Premium

The renovation funds from the lender will remain with the notary, until the renovations have been completed and confirmed by the lender. However, with current restrictions due to the pandemic – there are no in-person appraisals happening. It is advised to speak to the lender to see what their current protocol is.

If you’re considering purchasing a home which needs some work, you can always get a purchase plus improvement mortgage with 5% down.

To get a mortgage for more than the purchase price for renovations, the property should be one of the following:

  • A duplex, triplex or fourplex with a unit occupied by the buyer
  • An existing home

Buying a Fixer-Upper Mortgage

A home in Canada can be expensive, and finding the right home that requires no work can be a diamond in the rough. If you’re buying an existing home, there is a chance that it may require some work. The amount of work required will depend heavily on the age of the home and how much it has gone through.

It’s one of the reasons why many lenders offer a purchase plus improvement mortgage.  When purchasing a fixer-upper home, it’s important to consider a few tips. We spoke to experts in the field and they gave us the following recommendations when buying a fixer-upper.

Legal Finished Basement

When a seller is putting their home on the market; they’re trying to get the most amount of money for it. In an effort to do so, they will attempt to finish the basement before it goes on the market. We’ve seen sellers who put up walls in a day and call it a finished basement. These areas of the home may have no insulation, improper electrical work, unpermitted renovations, etc. It’s always important to stay informed when buying a place – a reason for buyers to use home inspectors and professional real estate agents.

Understand the Home’s Value

It’s easy to fall in love with a home just by looking at it. However, if you’re buying a fixer upper – you need to consider the value of the home. Consider the functionality of the home, the value of the neighborhood and the demand in the area for people looking to live there. If you can assess the home and assign a value purely from a investment standpoint – it is worthwhile moving forward. However, with current market conditions where homes are selling for above-asking – it is important to understand that there is a value in the demand.

Limit Your Budget

Whether you’re buying a fixer upper home or getting a purchase plus improvement mortgage – you need to start by knowing your budget. When you have a budget, remember that you should not be buying at the top of your budget. Why? Because you need to have extra funds in the bank to cover closing costs and renovations. While the bank will give you funds – not all lenders will provide the funds up front. In some cases, you may need to spend up front and then get the funds from the lender.

If you’re purchasing a home within budget, you can safely spend on renovations without worrying about finances.

Some renovations can help increase the value of your home. These are strategic renovations that cause buyers to want to buy the home. This could be improvements to the flooring, finishing a basement, adding an extra bathroom, etc.

Interested in getting a mortgage plus improvement mortgage? Speak to a local mortgage broker and they’ll help you get specialized financing for your home.