How to Get Money for Renovations When you Purchase
One of the most common questions I receive from borrowers is, “can I get extra money with my mortgage for renovations?”
The short answer is “yes,” but there are some restrictions, and the program is called “Purchase Plus Improvements.”
The bank will not just hand you money you want for renovations and let you organize trades and materials. They will insist on a few specific steps:
1. You will need to get a professional quote that outlines the work being done. You need this prior to getting an approval and certainly before you remove subjects on your purchase.
Why? Because the bank wants to know what work is being done and that a qualified professional will be doing it. Things like window coverings, appliances, and demolition are not included because they either take value away from the home (demolition) or are things that someone could walk away with (appliances). The program is intended to give extra funds for work that adds value to the home, and only permanent upgrades like paint, flooring, carpeting, cabinetry, electrical, plumbing, etc… will be considered. Also, the amount of the renovations typically cannot exceed 10% of the value of the home or $40,000. There are exceptions to this on a case-by-case basis.
2. Once you have received approval of your quote and projected work, the mortgage gets approved and assuming you qualify the mortgage completes and your purchase is funded. The funds for renovation are held back by the bank at the time your mortgage funds. So, even if you only have 5% down payment, the renovation money is available, but held back until the work is completed.
Why? The bank needs to make sure the money they give to you does, in fact, go towards renovations. They will insist that you complete all work before they advance any funds.
3. You do the work on the property financing it by credit cards, lines of credit, trade credit, or money from friends and family.
Why? The bank will make you do all work before advancing you any funds to ensure it does get done.
4. When work is completed, you will have to pay for an inspection by a certified appraiser to confirm that all work that was on the quote is completed. The cost for this is approximately $150 and takes 2-3 days.
Why? The bank needs to know that all work you set out to do is, in fact, 100% complete. You will have to pay for the inspection from a neutral third party appraiser to confirm that the work is done.
5. Once the bank confirms the work is 100% complete, they will advance the full amount of the funds held back for you to pay trades, credit lines, credit cards, or what have you.
As you can see, there is more to the process than just asking for renovation money. However, you can still get renovation money even with as little as 5% down payment on the home. The max is typically 10% of the home’s value or $40,000 although there are exceptions depending on the scope of work, value of the home, and borrower income levels.
At City Wide Mortgage Services we are specialists at guiding you through this process and making it as painless as possible.
A quick summary of steps is as follows:
- Get a quote for the work you are having done
- Submit quote for approval prior to removing subjects
- Get a full approval from the bank for the renovation funds
- Complete on your purchase and move in
- Do the renovation work to 100% completion
- Get an inspection by an appraiser to confirm work is 100% complete
- Get your money from the bank
A few frequently asked questions:
1. I am capable of doing the work myself and can get a substantial savings on the work. Can I do it myself?
Answer: Maybe. The lender will insist on a quote from a third party to confirm the amount of the work and the true cost to the layman borrower. If you are able to do some of the work yourself, contact us prior to work out how much financing the bank will do in your unique case.
2. What if I want a lot more than $40,000?
Answer: This is a general guideline. However, if you are doing more than 10% of the value of the home or $40,000 you might need a full construction loan with draws at specific stages. Contact us for more detail as these are reviewed on a case by case basis.
4. How long do I have to do the renovations and get the money?
Answer: Typically 6 months, and if you don’t complete the work within that time frame, the lender could take the funds back leaving you with no way to get money at completion. Budget and plan accordingly.
5. I want to have all work done before I move in. How do I line it up so that I can have the work concluded before I move in?
Answer: You will still need to complete on your purchase and take possession of the property. However, the only way to do this is to rent elsewhere or live with family while the work is being done. The bank will not provide money prior to completion as you don’t own the home yet.
For any further questions, or to run you specific situation past me, call or email me at 604-657-6775 or rowan@citywidemortgage.ca
For more information about Rowan click here
