What I love about this program is that it allows you to borrow the cost of renovations (up to a certain percentage) and add it to the home price, rolling it all into one easy-to-manage mortgage payment. Once you take possession of your new home, you can start the upgrades immediately. This type of mortgage comes with a few extra requirements before signing, and some strict rules to follow, but it runs very effectively if the client is properly guided thru the steps and does not deviate!
What does this mortgage allow?
• Competitive interest rates – The mortgage interest rate for which you qualify is not affected by this program.
• The cost of renovations are added to the home purchase price, with mortgages available up to 95% Loan-to-Value (LTV) or refinances up to 80% LTV
• Amortization for up to 30 years, depending on the Loan to Value and the Lender
What properties are eligible?
• Maximum four units, with at least one unit occupied as the principal residence (3 and 4 unit properties require min 10% down)
• New construction or existing properties
How it works (by example):
• Clients have an accepted offer of $800K – Min Down payment requirement would have been $55K
• Improvements that will be completed – upfront quotes required (see sample form) = $50K
• Improved Value of Home will be $850K. Min Down payment required is therefore INCREASED from $55K to $60K as it is based on the IMPROVED VALUE.
• Mortgage approval is based on improved value plus Insurance Fees e.g.: $850K less $60K down payment= $790K + $31,600 insurance = Must qualify for Mortgage of $821,600
• Clients take possession of the house, Seller receives their proceeds ($800K) and the additional $50K is held at the lawyers until the work is complete.
• Funds are released as soon as buyer can show the work they intended to do is done (inspection).
Important details to note:
• It is absolutely necessary to have firm price quotes prior to finalizing your mortgage— so if you only have one viewing of the property before funding …bring your camera and your contractor!
• You will not receive any funds for the renovations until after the work is completed and reviewed by the inspector/appraiser/bank rep. The improvements must be done on your OWN dime (or on credit that will be paid off with the renovation funds)
• You CAN NOT DEVIATE from the upfront quotes you provided the lender – don’t decide to do windows when you said doors – it won’t be covered.
• Tools or Sweat Equity will not be included (can’t pay yourself).
• Many Lenders require the work done by a licenced contractor
• The work you are doing must INCREASE the value of the home by the same amount in order to receive all renovation funds at the end of the day. Lending value is based on the lesser of the improved property value or the sum of the purchase price plus direct costs of the improvements.
• Single or multiple advance options (excluding initial purchase advance) are permitted and may be managed by Lenders. Improvements must be greater than $40,000 or 20% of the purchase price to be eligible for draws.