Homeowners in Abbotsford and Chilliwack with adequate equity in their homes have several options to finance renovations or repairs, such as a cash-out refinance, a second mortgage, or a home equity line of credit (HELOC). For those considering purchasing a property that needs work, a specialized option available through mortgage brokers like Jodi Smith at Whalen Mortgages Abbotsford and Chilliwack is a purchase plus improvement loan.

Purchase Plus Improvement Loans Explained

This type of loan is designed for buying homes that require renovation, making it feasible to enter a more expensive neighborhood or enhance a basic property to better suit your needs. Such properties often appreciate more rapidly than new or already well-maintained homes.

The renovation funds in a purchase plus improvement loan must be allocated to projects that boost the property’s value. Eligible improvements include significant modifications like adding bedrooms or finishing a basement, and luxury upgrades such as gourmet kitchens or high-end bathrooms. However, the funds cannot be used for mere appliance upgrades, unless it’s a new build with an appliance allowance from the builder.

Application and Restrictions

When applying for this loan, you must present a detailed renovation plan, which could potentially extend the closing process. To expedite, consider obtaining a list of necessary renovations from the seller and securing quotes from professional contractors.

Lenders typically require that renovations be completed by professionals, limiting the use of DIY labor to ensure quality workmanship. This stipulation extends to significant upgrades like bathroom installations or electrical updates, which must adhere to building codes and pass inspections. Renovation funds are generally disbursed after the work is verified by an appraiser, typically within 90 to 120 days.

Financing and Down Payment

The purchase plus improvement mortgage often allows a low down payment, sometimes as little as 5%, based on the projected value of the property post-renovation. Consulting with a mortgage broker like Jodi Smith can provide insights into this type of loan, considering the additional lender restrictions and risks.

Utilizing the Loan for Minor Upgrades

This loan can also be suitable for properties needing only minor cosmetic enhancements, such as adding bedrooms to a smaller home or creating your dream property. However, it’s important to note that major renovations are usually not covered by CMHC loans, which tend to focus on cosmetic improvements.

Equity Loans for Current Homeowners

If you’re a current homeowner with significant equity, you have the option to leverage this equity for renovations or repairs through a cash-out refinance, a HELOC, or a second mortgage. For assistance with these financing options, Jodi Smith at Whalen Mortgages Abbotsford and Chilliwack can guide you through the process and help find the most suitable solution for your needs.




Usual way of financing:  
Purchase Price $300,000.00
Less 5% down payment $15,000.00
Financing Rquired $285,000.00
Plus 4% insurance premium $11,400.00
Total Mortgage $296,400.00
Mortgage payment @ 3.5% $1,483.85/month


Purchase plus Improvements:  
Purchase Price $300,000.00
Proposed Improvements $20,000.00
Less 5%of as improved value $16,000.00
Financing required $304,000.00
Plus 4% Insurance premium $12,160.00
Total Mortgage $316,160.00
Mortgage payment @ 3.5% $1,578.50/month


In this example, you are able to personalize the home to suit your needs and improve the value of your home, without waiting until you could afford to do the changes.
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