Published: February 18, 2013  •  Last updated: September 13, 2019 at 16:16 pm

“Purchase Plus Improvements” Mortgage Enables Needed Renovations

It’s often difficult to save up for your down payment and one-time closing costs, let alone have extra money for home renovations. Did you know you can consolidate your purchase AND the anticipated cost of improvements into one mortgage?

It used to be that people who bought a new home with a smallish down payment would later refinance their homes, and take out equity to pay for home renovations. But now you need to have at least 25% equity in your home before there is room to refinance up to the new 80% maximum allowed loan-to-value ratio.

And you really don’t want to tap into your credit cards and unsecured personal lines of credit to pay for these needed home improvements.

Fortunately, there are many mortgage lenders who offer a “Purchase plus Improvements” mortgage at the time you buy your home. It doesn’t have to be a huge renovation; it can be as simple as replacing carpet & installing hardwood, or perhaps adding granite countertops.

Every lender has their own way of dealing with this, but often they will limit the additional funding to $40,000 or 20% of the initial purchase price (whichever is less) And of course, the lender has to be satisfied the improvements will increase the value of the property.

Takeaway

Many houses you might consider buying need updates and some TLC to be ready for your family to move in to, but typical first mortgages will only allow you get financing based on the value at the time you buy it. Purchase Plus Improvements loans make it possible to purchase a home that might have been out of your reach, or unlivable without the ability to borrow additional cash for repairs, and are ideal when you find a house that has great potential, if only you could ….

And the bottom line is that when the renovations are completed, you have one manageable first mortgage covering everything, and a house that fits your needs perfectly on the day you move in..

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Tip of the Day

Anyone who is filing for bankruptcy protection from their creditors cannot be a director of an incorporated business during the bankruptcy protection time period

— Money Matter № 137
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