Add Renovations To A Mortgage – 3 Easy Steps

We often receive the question in our office: how can I add renovations to a mortgage? Well, if you already own your home, the simple answer is that you refinance. But what if you don’t own the home yet, that is, you are purchasing the home with the intention of renovating immediately?

What we are talking about here is something called “purchase + improvements” and some lenders offer that program. It works like this:

Step 1: Get Pre-Approved

Before you do anything, you need to understand how much mortgage you can qualify for. This is based largely on credit, down payment and income. You can learn more about pre-approvals here: https://www.robertfloris.com/mortgage-pre-approvals/

Step 2: Get Estimates To Add Renovations To A Mortgage

Once you know the size of the mortgage you can qualify for, then you have an idea of the maximum purchase price of the home. For example, let’s say you are pre-approved to purchase an $800K home and you find one that requires $30K of renovations. You place an offer to buy the home for $770K and provide the bank with professional estimates for the $30K of work that needs to be done. Add renovations to a mortgage and it will actually be an $800K home when you’re done.

Step 3: Do The Renos And Prove It!

In this example, the bank will hold back the $30K until the work is done and you prove it. They will require an inspection following completion of the work.

This seems like a great idea BUT I need to warn you:

1. They won’t advance the money until the work is complete. So you either need to finance it or the contractors will need to wait for payment.
2. There is a limit on the extent of the improvements. It varies from bank to bank. In other words, you can’t buy a $770K home with the plans to do $300K of improvements. There is a limit (usually around 20% of the purchase price).
3. The pre-improved home must be in a livable and marketable condition as is. In other words, it can’t be too rough. It needs to have all the elements necessary to live there. Roof, kitchen, bathroom, floors, windows, doors etc. They need to be improvements or “minor” repairs.

So there are a lot of caveats when it comes to add renovations to a mortgage so we need to proceed with caution. This pushes us back towards the infamous warning about conditional on financing because the bank would need to see the whole picture, and we would need all the quotations in advance!

Robert Floris has been in the mortgage industry for 30 years, including working as a Sales Manager for a major chartered bank. Over his career, he has personally lent over 1 billion dollars and proudly continues to advise and tutor his valuable clients.

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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