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Renovation and Construction
 January 19 2016     Posted by Siemens Group

There a a variety of options for financing if you wish to extensively renovate your current home, or construct a new home. They are:

- Access equity with an ordinary refinance, either adding the money to your existing mortgage or adding a Home Equity Line of Credit product. This is often the best option for borrowers who have significant equity in their property.
When you are purchasing a new home and wish to arrange renovations immediately, you can use a 'purchase plus improvements' program, which allows you to finance the cost of relatively small renovations (typically up to a maximum of $40,000).
If you are planning to significantly renovate your property, or you wish to build a new home, you will likely use a construction financing program with multiple draws. This program allows you to arrange financing on the value of the property as complete, but requires extra effort in terms of paperwork and progress inspections to reassure the lender that the project is progressing as it should. These programs are typically financed at a prime + variable rate with interest-only payments during the construction phase, after which they convert into a closed mortgage. To learn more about the draw schedule, click here.

The chief consideration with either a purchase plus improvements program or a construction draw mortgage is that in either case, the funds are released by the lender only after the work is completed: either after the project is fully completed (in the case of a purchase plus improvements program), or at pre-set progress goals (in the case of construction financing). This means that a borrower needs to have the liquid assets available to reach that point, at which point the lender will reimburse. Good planning is essential, as without the work having been completed the lender will not release the held back funds.

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