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Looking at a fixer-upper? Consider this mortgage

If you are interested in buying an older home you may want to consider a Purchase Plus ImprovementsMortgage.

If you are interested in buying an older home, but are not excited about the vintage pink bathroom fixtures or the fake wood panelling on the walls, you may want to consider a Purchase Plus Improvements Mortgage.

This loan will provide you with enough to buy a home and cover the cost of upgrades. For example, you could borrow money during your purchase to also finish a basement or renovate a kitchen.

The loan is approved on the basis that the renovations will increase the value of the property. Through a Purchase Plus Improvements Mortgage, you can finance up to 95 per cent of the increased value — what the house will be worth after renovations. For example, you could buy a $200,000 house and do $20,000.00 worth of work with a down payment of only $11,000, or five per cent of the total cost.

Unfortunately most borrowers do not appreciate that they will have to pay for the renovations themselves. The improvement funds are not typically available until the work is complete.

The mortgage company will require your lawyer to “hold back” the funds until you prove that the work is done and the value of the house has increased proportionately. An appraiser may be hired to provide an inspection report to the lender, or you may have to provide receipts or proof of purchase for all materials and labour.

As such, you may have to use a credit card, line of credit, or private loan to finance the renovation until the work is complete and the funds are made available.

– Elias Metlej is a real estate lawyer with the Halifax firm Blois Nickerson & Bryson. You can write to Elias at askelias@yahoo.com

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