Purchase Plus Improvements

How the program works

Before closing you provide written contractor quotes for the work. The lender adds that amount to the purchase price, and an appraiser confirms the improved value. Your mortgage is approved on the higher figure, and your down payment is calculated on it as well.

The improvement money is not handed to you at closing. Your lawyer holds it back until the work is finished and a second appraisal or inspection confirms it was completed as quoted. Then the funds are released.

That holdback is the part borrowers must plan for: you or your contractor need to carry the cost of the work for a few weeks. Contractors who have done these before will usually agree to be paid on completion.

What qualifies as an improvement

Permanent improvements that add value to the property qualify. Cosmetic and structural work both count, as long as it is attached to the home and covered by a quote.

• Kitchens, bathrooms and flooring
• Windows, doors, roofing and siding
• Furnace, air conditioning and electrical upgrades
• Finishing a basement or adding a legal second unit
• Not included: furniture, appliances that are not built in, and landscaping at some lenders

When it beats a line of credit

The alternative is buying first and borrowing for the renovation afterwards on a credit line or credit card, at a much higher rate over a much shorter payback. On a significant renovation the interest difference over a few years is substantial.

It also matters for qualifying. Renovation debt taken on after closing counts against your ratios at its own payment, while the same money inside the mortgage is amortized over decades.

Getting the file right

Two things sink these deals: quotes that arrive after the financing condition expires, and work that changes after approval. Get written quotes during your conditional period, and if the scope changes, tell us before the work starts rather than after.

Keep the improvement budget realistic against the appraised improved value. Spending $100,000 does not automatically add $100,000 of value, and the appraisal, not the invoice, sets the lending limit.