How to Pay for Renovations

Date Posted: November 30, 2022

How to Pay for Renovations

Renovation mortgage financing is one of the most popular renovation financing options for new homebuyers. It allows you to add the cost of the renovation to the mortgage when you purchase your new home. It also goes by other names such as purchase plus improvement mortgage; however, they all allow you to pay for the renovation with minimum down payments as low as five per cent.

This can often be a smart move for first time homebuyers as they may not have enough saved to purchase their house and immediately take on a renovation project. An advantage of adding the renovation costs to your mortgage is that you will almost certainly get a better interest rate than you would with a line of credit or a credit card.

How does renovation mortgage financing work?

Although every lender has different criteria, here are some standard measures for renovation mortgage financing:

• You assess what renovation needs to be done and provide a rough estimate.
• Get firm quotes from licensed contractors.
• Get approval from your lender.
• Take possession of the home and start renovation.
• After the renovations are completed and approved, your funds are released.

Can you use an existing mortgage to pay for renovations?

Mortgage refinancing is an option you can look into if you do not want to obtain the funds in other ways such as lines of credit or loans. Mortgage refinancing considers how much you still owe on the house, allowing you to borrow up to 80 per cent of the appraised value. This allows you to spread the payment over a long period of time and pay less interest than a line of credit or loan. To qualify, the renovation must make sense based on the property’s value and potential value.

Want advice on your plans to renovate? Contact your mortgage broker today.