Finding the perfect home can sometimes be almost impossible. However, there is a way to make that almost perfect home, perfect for you.
Case in point. Buyer (A) has been looking for the perfect home for months. They finally locate the almost perfect home, but because it doesn’t have a finished basement and they don’t have the additional funds to do the work if they purchased the home, they decide to keep looking. Buyer (B) has been looking for the perfect home for months as well. They locate the same almost perfect home with the unfinished basement (they too want a finished basement, but don’t currently have the additional funds to complete the work), but they put in an offer and it's accepted based on their terms of securing the home with a mortgage that will allow them to finish the basement.
Mark Goode at Mortgage Architects calls it the Purchase Plus Improvements Mortgage and here’s how he outlined it to me in recent email.
Steps to securing the Purchase Plus Improvements Mortgage
- A detailed list of improvements, including a copy of contracts outlining the scope of the work and cost estimates is required.
- An appraisal with two separate values will be required: current value of the property “as is” and the estimated value of the property once the improvements are completed.
- Lender will lend based on the improved value as confirmed by the appraiser.
- The entire committed amount of the mortgage will be advanced to the solicitor.
- The solicitor will be instructed to holdback the cost of the improvements.
- All improvements must be completed within 90 days or the funds will be recalled and applied back to the mortgage.
- Once an inspection from an appraiser confirms ALL work is complete and a copy of the building permit (if applicable) has been received, the balance will be released.
EXAMPLE: Purchase price: $300,000 Improvements: $20,000
Total mortgage: $304,000 (95% of $320,000)
$284,000 will be released on closing date. $20,000 will be released upon completion of improvements i.e. improvements are 100% complete and a final inspection has taken place.
If you are finding it frustrating to locate the perfect home, check with your lender to see how this option might work for you. You can always include a condition in your Purchase Agreement about obtaining an acceptable detailed list of improvements from a builder of your choice along with the condition of mortgage when submitting your offer.
If I can be of any assistance you can always Get Jack here.