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The purchase plus improvements mortgage is a very helpful tool for many of our clients. It is especially valuable when our clients 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. Mind you, this home is a great discovery if you are planning on reliving That 70s Show, however most clients would rather not. Not to worry, this is why we have the purchase plus improvements mortgage!
Purchase Plus Improvements Mortgage (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:
- The client finds their new home and enters a contract to purchase it
- Once the purchase contract is in place, the client needs 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 our client’s 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:
Our client 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 finished, our client or his contractor is then reimbursed for the improvements completed.
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.
Additional Frequently Asked Questions (FAQ’s)
Q: What is the maximum amount of improvements a client 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%.
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.
This program will typically not accept renovations that are required for structural issues, mold remediation, “fixer-uppers” or “handyman specials” etc. These types of renovations are fundamentally different than those previously listed as they are indicators of a home being in sub average or poor condition.
Q: What if our client wants to do the work themselves?
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 Home Depot or Totem or Ikea.
Q: Can the client 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.
I am committed to helping you purchase and finance your new home. Please feel free to contact me with any questions regarding your Canadian purchase plus improvements mortgage.