Purchase Plus Improvements is for consumers looking to purchase a home that has great potential but needs a little TLC. This program allows you to make improvements immediately after taking possession of your new home and have the costs rolled into one easy-to-manage mortgage.
The purchase plus improvements mortgage is a very helpful mortgage program for many. It is specially valuable when you find the perfect neighborhood, location, home structure, and price only to be disappointed when they walk in and find pink shag carpet and 30 year old built in appliances.
Purchase Plus Improvement Defined
When a client is purchasing a home and wants to add cosmetic changes through a renovation process using funds advanced by the lender to complete and pay for the renovations.
The Steps to a successful Purchase Plus Improvements Mortgage:
Once the purchase contract is in place, you need to obtain quote(s) on the work to be completed. The quote(s) should be obtained from a reputable contractor or well known company and should be written professionally on letterhead including labor and material costs in an itemized fashion making review simpler.
Once your mortgage is approved and all conditions are met, the lender will advance the entire mortgage amount to the lawyer and condition for the lawyer to hold back the amount equivalent to the renovation cost.
For example:
You purchases a new home for $300 000 with 5% down payment and adds $15 000 in improvements. The new purchase effectively becomes $315 000 and a 5% down payment on this amount is now required. The lawyer will receive funds in the amount of 95% of $315 000 and will pay the seller the $300 000 owing and then proceed to hold back the remainder of the funds until the improvements are complete. Once the improvements are finished and inspected, the improvement funds are released. It is very important to remember that the improvement funds are not released until 100% of the improvements are complete.
Dispelling the biggest question with purchase plus improvements mortgages
The lender will not pay for your improvements up front, rather you will be reimbursed once they are fully complete to the lender’s satisfaction.
Frequently Asked Questions
Q: What is the maximum amount of improvements you can obtain?
A: The maximum amount of improvements allowed are equal to 10% of the purchase price. For Example, if the purchase price is $300,000, the maximum improvements allowed are equal to $30,000 or 10%. If you require more you will require a construction mortgage.
Q: What are cosmetic renovations?
A: Cosmetic renovations are usually smaller adjustments/renovations to the home’s interior or exterior appearance. Examples would include: New Carpets, New Kitchen Cabinets, New Paint, New bathroom fixtures, etc.
An example of a larger but acceptable improvement would be: The addition of a detached Garage, or full basement development. These items are designed to add value to the home and not to correct deficiencies or structural concerns.
Q: What if you want to do the work yourself?
A: Lenders will only compensate for material costs used to complete the improvements. For Example: A client is very handy and has a background or trade that would allow them to competently complete a small upgrade or renovation on their own, the lender will not compensate for their labor, rather just the materials. In this case we would ask for a professionally completed and itemized material quote from a hardware depot/store.
Q: Can you use this program to purchase new appliances?
A: That is a great question, in my opinion it should be yes. However chattel items such as Fridges, Stoves, Microwaves, Dishwashers, etc. cannot be included in this program. These items can be removed from the home upon sale and we cannot include them to directly impact a property’s value.
Link to CMHC Purchase Plus Improvement Program
Source: Mortgage Showdown
