Purchase Plus Improvements Home Purchase Program

Ever watched HGTV's "Income Property", "Property Brothers" or "Love It or List It"? Wonder how these folks can afford to tackle some of these projects? Well I'm about to tell you the secret . . . the "Purchase Plus Improvements" or "Re-Finance Plus Improvements" mortgage financing solution.  


 The "Purchase Plus Improvements Program" can help qualified home buyers make their home just right for them, with tailored improvements, immediately after taking possession of their purchased property. All this can be done with one manageable mortgage and with only 5% down-payment. 

 

Here's how the "Purchase Plus Improvements" program works. First, the program is available for property purchases containing up to two dwelling units with only a minimum 5% down-payment and  up to four dwelling units, i.e. triplexes and fourplexes with a minimum 10% down-payment of the combined purchase price and improvement amount.

This program may be used for fixer-uppers requiring major repairs such as a new roof, driveway, septic or well. Or for improvements such as a new kitchen, bathrooms or basement apartment. The key is the improvement must add value to the property. An important point to also note is improvements exceeding either 20% of the homes purchase price or $40,000. require a full appraisal of the home.

Down-payments may come from personal savings, RRSP withdrawal, non-repayable gift, sweat-equity, existing home equity, proceeds from the sale of a property, Government Grants or a combination.

This program is "mortgage insured" and is offer by the three major mortgage insurers, CMHC, Genworth and Canada Guaranty. Therefore, like any home purchase with less than 20% down-payment, mortgage insurance premiums will apply and home buyers will need to meet the financing guidelines of these insurers as well as the lender.

With the "Purchase Plus Improvements" program, the mortgage loan is calculated on the property's "As Improved Value". Therefore, keep in mind the minimum down-payment required will be a percentage of the "As Improved Value" not the purchase price.

Planning and preparation are always important as improvement funds are NOT typically advanced until after the improvement is complete and inspected. Therefore the home buyer will need to arrange trade credit and/or have access to funds for deposits, draws, etc. Also, improvements usually require completion within 90 days of closing. So make sure you take this into consideration when booking a contractor and scheduling delivery of materials.

It's always prudent to obtain written estimates of the improvements and verify that they are eligible under the program prior to finalizing (removing the condition of financing approval) the purchase. Let your Realtor know you plan to use the
"Purchase Plus Improvements" program fro your purchae. They can help you and the Mortgage Agent with the arrangements.
The following is a simplified example of how the "Purchase Plus Improvements" program may work for an improvement of less than 10% of the purchase price of a home and a maximum of $40,000.

• An accepted Agreement of Purchase and Sale on a home for $400,000. The home buyer is providing a 5% down-payment.
• The improvement is a new kitchen. A written quote for $30,000. and specs is obtained between acceptance date of the offer and the deadline for the "Condition of Financing" Approval.
• The Appraiser is contacted by the Mortgage Agent prior to the financing condition's deadline. The home is appraised “As Is” for $405,000 ($5,000 more than the purchase price) and estimates the “as-improved” value, as per the quote for $440,000. The mortgage loan amount is always the lesser of appraised or the purchase price, so therefore maximum loan amount is $430,000. ($400,000. purchase price plus $30,000. for the improvement value)
• Considering a 5% down-payment (95% loan-to-value), the maximum mortgage loan will be $408,500. and the required down payment $21,500.
• At closing, the home buyer's lawyer pays the Seller the $400,000. original purchase price as follows: 95% of $400,000 ($380,000) authorized by the Lender plus $20,000 (5% of $400,000.) of the home buyers' down-payment. The home buyers' Lawyer retains, in trust $30,000., the balance of mortgage loan and down-payment funds.
• Once the home buyer takes possession of the property, work on the kitchen can commence. Once completed, regardless of whether the kitchen comes in over or under budget or even a if different contractor is used, as long as the work is completed to the original specifications as confirmed by the Appraiser, $30,000. is available for release by the lawyer. It is important to note that if the project comes in over budget, the home buyer will be responsible for the difference.

When saving and budgeting for a down-payment for a home purchase, keep in mind you'll need to budget an additional 1.5% to 2% of the purchase price for closing costs. i.e.: legal fees, adjustments, land transfer tax, property tax holdbacks, etc. Read my post:  "What you can expect for closing costs" for more information on this subject. 

Already own a home you need to fix up to keep or resell and don't have the cash or the equity in your home? The "ReFinance Plus Improvements" program may be your answer.

You don't have to settle. Own your "Dream Home" with the "Purchase Plus Improvements" or the "Refinance Plus Improvements" programs. Contact me before you start looking at homes or refinance.

Author, Steven Porter, Mortgage Agent - Mortgage Architects. www.StevenPorter.ca; steven.porter@mtgarc.ca; 1-905-875-2582