When you buy resale, it’s someone else’s home. You understandably want to make it your own.
But how do you renovate when you just blew all your cash on a down payment? Here’s one way.
It’s called a Purchase Plus Improvements (PPI) mortgage, and it's available from most mainstream lenders.
PPI financing lets eligible default-insured buyers tack on up to $40,000 (or 10% of the purchase price) to their mortgage to cover renovation projects.
For uninsured mortgages, homebuyers can borrow 10% to 20% of the purchase price, sometimes more depending on the lender.
The money can be spent on anything from updating a kitchen or bathroom to finishing the basement, installing a new roof or adding a home office.
Apart from boosting your property value, PPI mortgages also have other benefits.
For one thing, rolling the cost of a home renovation into a low-rate mortgage can be a whole lot cheaper than using a Home Depot Card, for example. For just $169 a month extra on your mortgage payment (based on today’s rates), you can borrow $40,000 for improvements if you qualify.
PPI loans also simplify repayment, allowing you to focus on just your mortgage payment rather than stuffing additional debt on a credit card or personal line of credit.
And of course, the best benefit of all is that you get to live in a nicer home, sooner than you otherwise might.
Lenders don’t want people using home improvement money on new cars, vacations and home entertainment systems. PPI mortgages force you to follow a process.
Here are the basic steps, which may vary by lender:
1) Find a home
2) Apply and get approved for a Purchase Plus Improvements mortgage
3) Get firm quotes on the improvements
4) Get an appraisal for the estimated as-is and as-improved value of the property
5) Close the purchase
6) Depending on your down payment, the lender may lend up to:
7) Start the improvements
8) Once the project is complete, you notify the lender, at which point an inspector/appraiser confirms the work has been completed to the specifications agreed by the lender
9) Once the lender verifies the inspection report, the lawyer/notary is instructed to release the funds to the borrower to pay the contractor.
Some things to keep in mind: