Buying and renovating
If you find a home that requires a lot of work to be done (mostly cosmetic), ask your broker about a purchase plus improvements mortgage. Often if a home is in a state of disrepair, the lender might not agree with the value of the home to justify the purchase price. Or another reason would be, a lender may not want to lend on a home that is not in great condition because if they ended up in foreclosure, it would not be an easy house to sell. The way a purchase plus improvements works is the buyer will need to get detailed quotes of all the renovations that need to be done to the home. The lender will look over the renovation quotes and see if the buyer can qualify for the reno amounts and the initial mortgage amount. The buyer is required to pay for the renos upfront but once they are complete, the lender will send out an appraiser (at the buyer’s expense) and the appraiser will determine the new value of the home after the renovation has been done. If the lender is satisfied with the renovations and the updated value of the home, they will return the funds to the buyer for the renovations. This can be done in stages ie: after a kitchen reno, bathroom reno, new windows ect. It is important to know that you will be making mortgage payments based on the principal mortgage + improvement costs.