If you're looking to purchase a home that needs a bit of work, a Purchase Plus Improvements mortgage is a great way to complete smaller renovations up to $40,000.
Here's how the program works:
a) The costs of your improvements are factored in at the time of your home purchase.
b) You must use your own funds first to complete the work, and then you are reimbursed once 100% finished.
c) You have to obtain quotes from professional tradesmen in writing for the work that is to be done. The amount of the improvements must be no more than 20% of the purchase price to a maximum of $40,000.
d) The lender will determine the lending value as follows: the purchase price of the property you are buying + the value of the improvements = lending value.
For example, if you are purchasing a home for $600,000 and are planning a $40,000 improvement, the lending value = $640,000. The lender approves your mortgage with your desired level of down payment. So, if you wanted to put 10% down, the down payment would be $64,000, and the total approved mortgage would be $576,000 + applicable high ratio insurance premiums.
e) On closing day, the lender advances your mortgage based on the initial purchase price. Your lawyer or solicitor holds back the additional funds approved until the bank authorizes the release.
f) Once the work is complete, you must provide copies of the paid quotes. The completed work must match the initial quotes. The lender may request an appraisal in addition to the paid quotes.
g) Once the lender is satisfied that the work has been done according to the original plans, the lawyer or solicitor is instructed to release the holdback, and you receive the funds.
Other Notes: Budgets over $40,000 usually require construction draw financing. Appliances are not eligible to be included in the budget, as well as decorative items, hot tubs, above ground pools, etc. Canada Guaranty has a great information link outlining their Purchase Plus Improvements guidelines. Lenders & insurers may require an appraisal upfront, which may impact the lending value and approved mortgage amount. Applicants are subject to full underwriting and must meet both lender and insurer qualification guidelines. It is important to be organized and ready to obtain quotes in writing as soon as you have an accepted offer. You must have the approval from the lender for the whole amount and future renovation project before deleting or waiving your mortgage condition.