Purchase plus improvements Mortgage

We regularly receive calls from clients in Calgary and throughout Alberta and Canada who have found their new home; the right location, great floor plan, and perfect neighbourhood, but cosmetically the inside of the home looks like a bad trip back to the 80’s, or worse – the 60’s. This is a case where we would often suggest our clients proceed with a purchase plus improvements mortgage. There are some definite misconceptions surrounding this program so we have included below information explaining the process in obtaining a purchase plus improvements mortgage approval along with some common misconceptions and mistakes that people make.

The purchase plus improvements mortgage process:

Once you find your new home and enter into a purchase agreement we typically have what is called a financing condition period. Within this time frame of usually about a week we look after the completion of your mortgage approval, however with your purchase plus improvements there are a couple of extra steps. The first step is to determine your improvements and receive a contractor quote for them. Once we receive your quote we add the quote amount to your purchase price and submit to the lender and insurer (if applicable) for their approval.

For example:

You have a purchase price of $300 000, a down payment of 5%, and improvements of $20 000. To the lender and insurer this becomes a purchase price of $320 000 and as a result of the increased price your 5% down payment increases from $15 000 to $16 000.

At funding the seller receives the $300 000 purchase price owed to them and the lawyer holds back the improvement funds until your work is complete and inspected. This is the biggest misconception with this type of mortgage, the lender will not pay for your improvements, rather they will reimburse you once the improvements are complete.

Items that can typically be included in your mortgage:

*Kitchen and bathroom renovations
*Flooring
*Windows
*New roofing
*Paint
*Garage construction

Items that you are not able to include are non- attached goods and items that are deemed to not add value such as:

*Appliances
*Window coverings
*Landscaping
*Fencing

Some common misconceptions and helpful hints:

*As we discussed earlier, with a purchase plus improvements mortgage the lender will not pay for your improvements, rather you are reimbursed once they are complete.

*Lenders require the contractor quotes up front. With this in mind it is important to ensure the contractor is lined up and able to access the property during the condition period.

*There is only one draw available. For example if you are replacing a furnace and the kitchen cabinets and the furnace takes a couple of hours and the cabinets a couple of weeks, reimbursement will not happen until all items are complete. With this in mind, it is often best to schedule all items to be complete at about the same time.

*This program is designed for improvements, not major renovations. The maximum improvement amount is 10% of your purchase price and usually about $30 000 to $40 000. It generally cannot include any major construction such as the movement or removal of walls and other structural changes.

*You start to pay interest on the improvement money on your possession date. At possession, the entire amount of the funds are advanced to the lawyer’s office and they complete a hold back of your improvement funds.

We have many years of experience working closely with our clients to ensure their new home purchase along with their purchase plus improvements mortgage is approved quickly, properly, and will excellent rates and terms.  Please feel free to contact us via phone, online contact form, or via an online application and we would be happy to work with you to ensure your new purchase and mortgage is excellent.