Situation A:

The cost of the renovations are fully reflected in the increased house value.

Purchase Price .............................................120,000

Cost of renovations .......................................30,000

Total House Cost ..........................................150,000
(purchase price + cost of renovations)

"As Improved" Appraised value..........................150,000

Maximum Mortgage Loan Amount*.......................................................142,500
(95%** of the "as improved" value of 150,000)

Minimum amount of borrower funds required**.....................................................7,500
( The difference between the total house cost of $150,000 and the maximum loan amount of $142,500. In this example the cost of renovations are fully reflected in the "as improved" value therefore the minimum down payment represents 5% of the "as improved" value of $150,000.)

First Advance on purchase....................................................112,500
( The purchase price of $120,000 less the minimum down payment of $7,500) Second advance after improvements have been made..........................................................30,000 ( The first and second advances together total the mortgage loan amount of $142,500).


Situation B:

The Cost of the renovations are greater than the increase in value.

Purchase Price...........................................................120,000

Cost of renovations..................................................30,000

Total House Cost...........................................................150,000
( purchase price + cost of renovations).

"As Improved" Appraised value..........................................................145,000

Maximum Mortgage Loan...........................................................137,500
( 95% of the "as improved" value of 145,000)

Minimum amount of borrower funds required.......................................................12,500

( The difference between the total house cost of $150,000 and the maximum loan amount of $137,500. In this example the "as improved" value is $5,000 less than "the total house cost". Therefore, the minimum required is $5,000 more than it is for "Situation A").

First Advance on purchase.......................................................112,500
( The purchase price of $120,000 less the minimum down payment of $7,250 which represents 5% of the "as improved" value)

Additional funds required to complete renovations....................................................5,250
( This amount plus the minimum down payment of $7,250 equal the "Total minimum amount of borrower funds required of $12,500)