Purchase Plus Improvements: Don’t buy your dream home! Create it!

Lego HouseDo you want to get your dream home without having to fight other buyers in a bidding war? Want to get a deal? Want to create value? Do you want a nice home but it seems just out of your reach? Do you find that places just aren’t…right? Do you ever say this would be so much better if…?

What if you found out you could make those changes and create your ideal space?

With the new mortgage rules decreasing amortizations, many buyers need a larger down payment. So then they have less or no funds available to be creative with when it comes to making that nice newly purchased home revitalized so it feels like their “own” home.

With interest rates at all time lows, look at the options of older, beat up, tired properties that no one else wants to update, and turn it into a modern comfortable home for you and your family. If you are willing to put in the time renovating an older home, using a Purchase Plus Improvements mortgage you may be able to not only get a good deal but create the space you want! There are a few different ways to do this. The basic idea is the bank will lend you the majority of your mortgage upfront and hold back a portion of the funds to cover the extra costs of your improvements.

This type of mortgage used for a property purchase does require the buyer to take a few extra steps. You will need appraisals both before and after the renovation. As well, a third party contractor’s quote (on the cost of the work before you go ahead with the project) will likely be required. This means you are going to want to have some good professionals on your side that understand this process and will work with you to achieve your goal.

Let’s work through an example:

Let’s say you buy the home that really needs updating…so you get a great deal because it has a Sunflower Yellow bathtub and toilet, with Avocado Green appliances in the kitchen and shag carpet that looks like it is ready to get up and walk away. Because of the distressed or dated nature of the property, you make a great deal and purchase it for let’s say $800,000. With your contractor and appraiser, you determine after renovations are completed, the home would be worth $860,000. So the bank agrees to funds for the future value of the home, using a purchase plus improvement mortgage allowing you to purchase the home first, with additional money set aside to then cover the costs of renovations. What the bank basically does is provides the regular funds to purchase the home at $800,000 (as they would for any normal transaction) and then allow an extra $60,000 to be held in a lawyers’ trust account to pay for the renovations. As part of this process, the updating must be verified by an appraiser, or via receipts, once all of the renovations are complete.

This type of strategy is done slightly differently by each lender but is a very real option for people in today’s market. It does take some extra work or sweat equity with good planning but it will allow you to take advantage of low interest rates when most of your money is going into your down payment. Use bank financing to your advantage and create a space you truly can call your own.

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