Short answer: a purchase plus improvements mortgage lets you roll the cost of pre-planned renovations into your purchase mortgage, at purchase-mortgage rates, instead of paying for them separately in cash or through a higher-interest loan after closing.
How It Works
- You get contractor quotes for the planned renovations before closing.
- Your lender approves financing based on the home's as-improved value, not just its current condition.
- The improvement funds are held back at closing, not released to you directly.
- Once the work is completed, an inspector or appraiser confirms it, and the holdback funds are released to pay the contractor.
How Much You Can Typically Add
Limits vary by lender and insurer, but a common structure caps the improvement amount at the lesser of a percentage of the purchase price (often around 10-20%) or a fixed dollar limit set by the lender or mortgage insurer, commonly in the $40,000-$50,000 range. Your lender will confirm the exact cap that applies to your specific deal.
What Actually Qualifies
Generally, structural and functional renovations: kitchens, bathrooms, flooring, roofing, furnace or electrical upgrades, and similar improvements that genuinely add value or livability. Furniture, appliances not built into the renovation, and purely cosmetic or luxury add-ons typically don't qualify.
Why It's Useful
Buying a dated or fixer-upper property is often cheaper per square foot than a fully renovated one. A purchase plus improvements mortgage lets you finance the gap between "as-is" and "livable" at your mortgage rate, rather than draining savings or using a high-interest personal loan right after your biggest purchase.
Looking at a Fixer-Upper?
We'll walk through whether purchase plus improvements fits your specific property and renovation plan. Talk to Sean before you make an offer.