As your local Kamloops mortgage broker, I can relay that many homebuyers looking at older properties find themselves in a common predicament: they’ve found a property that suits them but needs costly and immediate upgrades. Check out my blog post “Buying a Home in 2023-Preventing Buyer’s Remorse.”

Many buyers add the costs of those immediate renovations into their mortgage instead of racking up credit card bills or selling investments to pay for the upgrades. Known as a “purchase plus improvements” mortgage, this type of mortgage covers the sale price of the home plus any renovations that would increase the property’s value, with as little as 5 percent down.   

If you’re buying a home but want to add a second storey, finish a basement or redo a kitchen, adding those costs to your mortgage can make a lot of sense. That way, you can spread your payments over the life of the mortgage and have a cost-effective way to get your dream home. You can also use your pre-payment privileges to pay the renovation off faster. The process is quite simple:

Obtain cost estimates for the upgrades.

You have found a home. Now, you need to get detailed written quotes from licensed contractors on the renovations you plan, outlining the scope and all costs.

Get your appraisal

An appraisal with two separate values will be required: the property’s value “as is” and the estimated value once the improvements are completed.

Renovation costs are included in your mortgage.

Your lender will add the estimated costs of the renovation to your mortgage. For example, with a 5% down payment, your mortgage broker would apply for 95% of the “as improved” market value, which will be higher than the actual purchase price. Learn more about how CMHC’s Improvement Program works here. The committed amount of the mortgage will be advanced to your solicitor, who will be instructed to hold back the renovation funds until the work has been completed and inspected.

Complete your upgrades; funds are released upon completion.

The appraiser confirms all work is complete and a copy of the building permit (if applicable) has been received. The balance of the mortgage funds will be released to you to pay for the renovations. There are a few options for carrying your expenditures until the funds can be released. Some major home improvement retailers offer “no payment” options for up to six months. Larger contractors may also be willing to finance the project in the short term if they see the documentation for purchase plus improvements financing. 

Haven’t found your dream home yet? Maybe it is time to look outside the box with a Purchase Plus Improvements Mortgage. Let’s talk today!