When looking for a home, it’s not uncommon for many of us to think: “What a beautiful home with a great yard. Too bad the kitchen is outdated.”
If the idea of buying a home in need of renovation to fit your needs or desires is a turn-off, the purchase plus improvements program might give you pause for thought.
This program can help get you into the home and update it with your dream kitchen or spa-like ensuite.
It also saves you any inconvenience or hassle of arranging a second loan after closing. Now you can purchase a home, renovate it the way you like and pay for it all in one mortgage payment at first mortgage rates.
The Purchase Plus Improvements mortgage is possible regardless of your down payment. This mortgage can be done by putting as little as five per cent down of the “as improved” value.
For example, if you purchased a home for $300,000 and wanted to do $50,000 worth of renovations, GE or CMHC will insure a mortgage based on 95 per cent of the “as improved” value.
So with a down payment of $17,500, GE or CMHC will insure a mortgage of $332,500.
The key for this to work is that the cost of the renovations has to be reflected in the “as improved” value of the house.
In the above example, the property would have a value of at least $350,000 after the $50,000 worth of proposed renovations was done. This is easily verified with an appraisal, which would include information prepared by the renovation contractor to be submitted along with your application to the lender.
You can also refinance your existing home to include update renovations. Again, an appraisal will provide the current value of your home. The cost of the renovations will then be taken into consideration to help determine the renovated value of the house.
Information needed to determine that updated value would include:
• Description of the work
• Types of materials being installed with applicable quantities
• Total cost of all work including applicable taxes
• Description of work
• Copy of drawings
• Cost breakdown of all proposed work such as:
• Excavation and foundations
• Exterior finish
• Interior wall and ceiling finish
• Windows and exterior doors
• Finish carpentry such as trim, doors, and kitchen cabinets
• Interior painting
• Finish flooring
• Site work and landscaping
In the case of a purchase, make your offer conditional for a longer than normal conditional period, 10 business days and get estimates for the work you want to complete immediately after the offer has been accepted.
The lender will advance the portion of the mortgage required to close and once you take possession of your new home you will begin the renovation.
Once the renovation is complete, you will be required to have the appraiser return and confirm the work has been done. The lender will then advance the balance of the funds to you.