Finding a way to finance home renovations

In my last column, I wrote about looking at refinancing your home to consolidate debts or pull money for renovations to your home.

It struck a nerve with several people, I’ve had great conversations with people I wouldn’t normally have connected with.

On Feb. 25 and 26, I will be at the Kelowna Home Show at Prospera Place. As I’ve been busy preparing, the subject of home renovations and products has been very much on my mind. If you are going to the trade show, you may come away with ideas for new projects you want to tackle at your own home.

One option you may not be aware of is a “purchase plus improvements” mortgage. The short version is you add the cost of renovations into your home upfront when you buy.

Here’s how this can work.

Let’s say you found a home in a terrific neighbourhood that checks almost all of the boxes on your wish list. The home has a great layout, is in the right school catchment area and is central to all of the things you like to do in your spare time. The only thing is the house is really dated inside. Or maybe you want to renovate the basement to add a rental suite.

You have scrimped and saved for your down payment but there is no chance you can come up with another $40,000 to renovate the kitchen and bathroom and change the flooring. The house has great bones but you would like to invest in a home that you will be happy to come back to at the end of your work day.

A purchase plus improvements mortgage can be a brilliant option for you.

Here is how the program works.

You find a home priced at $400,000. You do some homework and know that for $40,000 you can give the main floor a complete overhaul and update.

We would put your new mortgage together to reflect your purchase price of $400,000 + $40,000 for the renovations. Your down payment would be $22,000 – only $2,000 more than if you did not add in the renovation budget.

In the first scenario, where you buy the home with no renovation funds, your monthly payment would be about $2,229.26. (based on a five-year fixed rate of 4.69%). Adding the renovations funds in your payment would bring it to $2,452.19 per month. For a difference of $222.93 per month, you could move into a freshly updated home that suits your tastes and family needs.

The additional renovation funds will be held in trust with your lawyer or notary until the renovations are complete, so the challenge can be paying for the work and materials upfront but there are options available to help with that.

If you come to the home show—which has free admission this year—pop by and say hi.

If you’d like to talk about how a purchase plus improvements mortgage or how refinancing for renovations might be the right fit for you, I’ll be happy to answer your questions.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.