Transcript of Video Blog:
Hi, everyone. Rowan Smith from the Mortgage Center. I got a call today about a client who wanted to do some renovations on the home when they bought it. And they said to me, “But I don’t have the money for doing the renovations I’d like it built into mortgage. Is that possible?” Yes, there’s a few different ways to do it. One of the most common programs is “Purchase plus Improvements”. And under that program, the way it works is, you borrow money.
I’m going to use a nice, round example, you buy a $100,000 home, you put five percent down, that’s $5000. You have a $95,000 mortgage, but you want an extra $10,000 to do some renovations.
The way that it works is you have to first get a quote from a contractor that explains what the work he’s going to be doing and the cost that it’s going to be to get that work done. You’re going to present that when you do your mortgage application.
So, when you write the offer you need to get a contractor in there right away to that quote because your mortgage broker is going to need it in order to submit it with your deal to the bank to ask that extra $10,000. You won’t be able to get it afterwards, so you have to do it as part of the transaction.
So, they send in the application, see, and the bank looks at it and makes sure that the work that they’re doing is appropriate for that price. And if they approve it then the full amount of the mortgage gets advanced to the lawyers office.
But you don’t get your $10,000 to do the renovations. You have to do the renovations first, provide receipts, provide proof of the work that’s done, often times they’ll require an appraisal to go through to make sure that the work is in fact done. And then they’ll release the dollars to you.
So, if you’re doing a big ren, you wanted $40,000 or something like that, you can still do it, but you have to have the means to come up with the cash to pay trades and materials in advance and then the mortgage money will come to you later.
So, yes, you can use the line of credit where you can borrow money from family and friends but you have to have a way to get the work done first and then they release the funds. Now, is there times when you can get around this? Yes, but generally you need 20 percent or more down payment or set up a structure like that.
If you’re someone in either of those situations with less than 20 percent down or more than 20 percent down and you want money for renovations while you’re buying the home or after give me a call. From the Mortgage Center I’m Rowan Smith.
