Purchase Plus Improvements Mortgage Explained

purchase plus improvements mortgage

Purchase Plus Improvements mortgage is a great opportunity to purchase real estate and immediately make repairs to your liking. Many families are faced with the need to invest a huge part of the money in renovation work. If your funds are not enough or they simply do not exist, you can solve the problem by completing the Purchase Plus Improvements deal.

Features of the Mortgage Program for Canadians

Bank clients increasingly prefer to include the costs of upcoming repairs in the total amount of the mortgage. A mortgage for the repair of an apartment or house is a mechanism for borrowing funds, which has two key features:

  • the co-borrower must be solvent;
  • money is taken for a specific purpose – the purchase and renovation of housing.

Such a loan combines the features of a classic mortgage, issued for the purchase of the real estate, and the targeted need for the renovation of a house or apartment. The client of the bank is obliged to document the expenditure of funds for materials and services for the repair.

This is interesting: according to the latest survey, about 40% of co-borrowers did not know about the possibility of obtaining a mortgage plus improvements in Canada.

Thus, you can not only get the property for personal use but also prepare it for moving in. The loan amount for the upcoming renovation work and the mortgage loan is combined and the client makes the total monthly payments.

Purchase Plus Improvements Mortgage: How it Works in Practice

Before ordering a Purchase Plus Improvements mortgage, you need to complete a few steps. First of all, it is the search for a suitable property. At the same time, it is not necessary for a house or apartment to be in a deplorable state and require major repairs. Perhaps you want to use a bank loan for general style improvements or exterior furnishings.

A step-by-step guide for preparing a Purchase Plus Improvements mortgage transaction:

  1. Market monitoring in search of a suitable apartment or house.
  2. Determination of the scope of upcoming repairs.
  3. Calculation of the amount required for finishing the premises.
  4. Paperwork and applying with the bank.

Please note: try to invite several contractors so that you can choose the best option for the ratio of price and quality of the services offered. You can even split responsibilities between different contractors if you wish.

Once you have selected a home and calculated the cost of renovation, it is time to consult with a bank employee. Tell the financial advisor in detail what improvements you plan to make so that they can give you a mortgage plus approval with the cost of the repair included.

As soon as you become the owner of the property, the lender will send the amount set for the repair to the lawyer. At this stage, your chosen contractor can start fulfilling their obligations for up to 120 days. As soon as the repair work is completed, a bank representative to assess their quality will check them and, if approved, the contractor will be paid for the work.

Other Options to Pay for Renovations

The mortgage plus improvements option is not the only way to pay for the renovation of the purchased property. This is a convenient and budgetary way to improve your living conditions, but we must also tell you about other ways to pay for contractors. 

You can pay for repairs yourself, pay off debt ahead of schedule, or reduce your monthly payment if you use:

  • personal savings;
  • credit card;
  • a cash loan in the same or another bank.

Choosing a payment option, you need to correctly calculate your financial capabilities. For example, when considering home renovation loans in Ontario, keep in mind that in addition to the main payment, you will have to pay an additional part of the repair loan. Moreover, if you use an additional loan, the payment rate will be higher than in the case of the Purchase Plus Improvements mortgage.

 Using HELOC Features

This is another option for financing renovations in Canada. HELOC is issued to the borrower on the condition that they can pledge another property in their ownership. Moreover, this type of loan has several key features, listed below:

  • the borrower must have a real estate object worth at least the required loan;
  • HELOC loans have lower interest rates compared to consumer loans;
  • this type of loan can be used for any need (not only for the purchase and renovation of premises).
  • Please note: HELOC loans often have the same approval conditions as classic mortgage loans.

The maximum loan amount, in this case, is determined based on the value of the collateral and the financial capabilities of the borrower. In this case, you can use the credit line (take funds and give them back) repeatedly during the period specified in the agreement. Some financial experts see HELOC as a “salvation” for borrowers who have taken out a lot of loans from various banks.

Purchase Plus Improvements Mortgage: Afterword

If you have found an excellent house or apartment, but its condition is far from ideal, do not despair. As you can see, there are many ways to not only make perfect renovations but also increase the market value of your property. To determine the choice, consult with your bank’s financial specialist.

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