Are you on the hunt for a new home but can’t find exactly what you are looking for? You’re not alone. House hunters experience this scenario every day. With real estate prices increasing you may not be able to buy your dream home the first go-round.
Think about buying a fixer-upper. There are many potential properties that you can put your own personal stamp on. Why not renovate something?
There is a mortgage product called Purchase Plus Improvements (PPI). With the PPI the lender is able to provide additional financing to improve the subject property.
This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.
There are parameters to the PPI mortgage program:
- Apply for up to a maximum of 10% of the as-improved market value
- Utilize as little as 5% towards the down payment
- At the time the application is submitted for approval the lender requires a construction quote to verify the work that is planned for the subject property
- Renovation to be completed within 120 days
- A third party (appraiser) must verify completion
- One advance of the funds once the project is complete
- Once the renovation is complete the lawyer would release the funds
Listed or Purchase Price: $450,000
Value of the Renovation: $45,000
As-Improved Value: $495,000 (new Purchase Price)
Maximum Borrow: $49,500 (10%)
Purchase Price: $495,000
Down Payment: $24,750 (5%)
Mortgage Amount: $470,250
Mortgage Insurance: $16,929
Total Loan: $487,179
Monthly Mortgage Payment: $2,146.17
For many, it is a daunting task to seek a mortgage plus a second type of financing to complete renovations, so why not opt for the PPI option?
If you are considering another form of financing for the renovation, some borrowers look for a line of credit, but is it really saving money and time? An interest-only payment on $49,500 is another $309.38 (based on 7.50%) which saves you $114.28 overall.
Michael Hallett, Mortgage Broker
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