Purchase Plus Improvements Mortgage

So, have you ever heard of a purchase plus improvements mortgage? It's a pretty interesting concept that can actually help home buyers finance both the purchase of a property and any necessary renovations or improvements. Sounds like a win-win, doesn't it? Well, let's dig into the details and explain how this type of mortgage works. First off, a purchase plus improvements mortgage is a type of mortgage that allows home buyers to borrow additional funds for renovations or upgrades to a property they are purchasing. This can be incredibly beneficial, especially for buyers who may not have enough cash on hand to cover the costs of both the home purchase and the desired improvements. Now, you might be wondering how this all works. Well, let's say you find a property that you absolutely love, but it needs some work. Maybe the kitchen is outdated or the bathroom needs a facelift. Instead of having to finance the purchase of the property and then find a separate loan or source of financing for the renovations, a purchase plus improvements mortgage combines it all into one convenient package. When you apply for a purchase plus improvements mortgage, you'll need to provide the lender with quotes or estimates for the cost of the renovations you plan to undertake. These quotes will be used to determine the total amount you can borrow. On the closing date, the funds for both the purchase price of the property and the estimated cost of the renovations will be forwarded to your lawyer with the funds for the renovations being held in trust until the work is complete and the lender authorizes the release. Now, it's important to note that the actual release of funds for the renovations may be done in stages or progress payments. This means that as the renovations progress and certain milestones are met, funds will be released to pay for the completed work. This ensures that the renovations are being done as planned and that the funds are being used appropriately. One great advantage of a purchase plus improvements mortgage is that the cost of the renovations is often factored into the mortgage itself. This means that you won't have to come up with additional cash or take out a separate loan to cover the cost of the renovations. Instead, the cost of the renovations is spread out over the life of the mortgage, making it more manageable for many buyers. A great comparison to this would be when you buy a car and will need snow tires; you could spend a couple thousand dollars all at once; or, you could include the price of the tires in the price of the car and finance the full amount. This is essentially what is happening with a purchase plus improvements mortgage.. In addition to the convenience of financing both the purchase and improvements together, there may also be some financial benefits to a purchase plus improvements mortgage. For example, the improvements you make to the property could potentially increase its value, allowing you to build equity in your home right from the start. This can be a smart investment, especially if you plan to sell the property down the line. It's important to keep in mind that not all lenders offer purchase plus improvements mortgages, so you'll need to do some research to find the ones that do. Additionally, there may be specific restrictions or requirements that you'll need to meet in order to qualify for this type of mortgage. For instance, some lenders may have a minimum loan amount or maximum renovations amount or require a certain percentage of the renovations to be completed by licensed professionals. Some lenders may only offer the product on an insured mortgage; where they use the insurers purchase plus improvement program. Now, let's talk about the potential downsides of a purchase plus improvements mortgage. One thing to consider is that the renovations you undertake may be subject to an appraisal. This means that the value of the completed renovations will need to justify the additional funds that were borrowed. So, it's important to choose your renovations wisely and ensure that they will truly add value to the property. Another thing to consider is that a purchase plus improvements mortgage may have a higher interest rate than a traditional mortgage. This is because the lender is taking on additional risk by providing funds for both the purchase and the renovations. So, it's important to carefully consider the cost of borrowing and ensure that it makes financial sense for your situation. Finally, it's crucial to budget and plan your renovations accordingly. It can be easy to get carried away with the excitement of buying a new home and wanting to make all kinds of improvements. However, it's important to stay within your means and have a clear plan for how the renovations will be completed. Remember, you'll be responsible for repaying the total cost of the mortgage, including the funds borrowed for the improvements. In conclusion, a purchase plus improvements mortgage can be a great option for home buyers who have their eyes on a property that needs a little TLC. It allows you to finance both the purchase and renovations together, making it convenient and potentially cost-effective. However, it's important to carefully consider the financial implications and ensure that the renovations will truly add value to the property. With proper planning and research, a purchase plus improvements mortgage can be a fantastic tool to help you turn a fixer-upper into your dream home!