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HOME BUYERS GUIDE
A comprehensive guide
to home ownership presented by the "The House Team"
PURCHASE + IMPROVEMENTS
This program is designed for people who wish to purchase a
home that may require some immediate upgrades . . . a new electrical service,
a new roof, central air, a new furnace, new siding, eaves, soffits, fascia,
doors, windows, a new kitchen, carpeting . . . or any other renovation that
would increase the value of the home.
The way it works is like this…Let’s assume that
you are a first time buyer and have 5% down payment. Before the mortgage financing
is arranged, written quotes are obtained from licensed contractors for the
repairs and or the improvements to be done to the home. When the application
for mortgage financing is made, the request is made for 95% of the purchase
price PLUS 95% of the cost to complete the improvements. Note: The lender
will “holdback” on closing the “improvement” portion
of the mortgage until the work has been completed, normally within 30 to 60
days of closing. Once the work has been completed, the lender will advance
the balance of the funds and the
contractor can be paid.
What does this mean? Let us give you an example…
Purchase price: $100,000 X 95% = $ 95,000
Cost of improvements: $ 10,000 X 95% = $ 9,500
Total mortgage: $110,000 X 95% = $104,500
Therefore, an application is made for a mortgage in the amount
of $104,500, which represents 95% of the purchase price plus 95% of the improvements.
On closing this is what happens…The Mortgage advanced to complete the
purchase is $95,000 plus the original 5% from the purchaser’s down payment
($5,000) sufficient funds to complete the purchase of $100,000. After closing
the contractor completes the improvements (normally within 30 to 60 days after
the closing) the lender advances the hold-back of $9,500, the purchaser pays
the additional 5% of the cost of the improvements ($500) and the $10,000 owed
to the contractor can be paid as per the original quote for the
work.
Everyone’s a winner!
The purchaser is happy because they got $10,000 of improvements
done to the home with a cash outlay of only $500 (the balance was financed
with their mortgage). The lender is happy because they now have a mortgage
on an improved home.
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