How To Roll The Costs of Renovations & Home Improvements Into Your Mortgage
Found your dream home but it needs a little updating? The Purchase Plus Improvements Program will allow you to add the cost of the renovation to your purchase price which means you can put as little as 5% down and still get industry best mortgage rates.
Here’s an example:
Home with purchase price of $300,000 and it requires $20,000 to update the kitchen and floors.
ISSUE: You only have $18,000 available which is the 5% down needed to buy & legal costs to close, and you don’t want to borrow for renovations on credit-cards! This program allows you to add the cost of the renovations to the purchase price and take out a mortgage on the improved value of the home.
Purchase price $300,000 + Renovations $20,000 = Total cost $320,000
Mortgage Amount $304,000 (95% of $320,000 + the CMHC premium will be added)
Adjusted down payment $ 16,000 (The “new” 5% of lending value)
The Fine-Print Explained:
If this program looks appealing there are a couple of things you should know:
– You will initially have to pay for the improvements yourself – it isn’t until the renovations are fully complete that you will be reimbursed costs. Your lawyer holds back the funds and releases them to you (to pay off the line of credit or credit card) when work is complete. There are options to cover the costs upfront as we realize if you HAD the money for the renovations you wouldn’t need the program:
o You can open a line of credit or obtain a Home Depot / Rona credit card (most will allow you 6 months before making payments which gives you time to complete the renovations and repay before any payment due) or
o Request for a short-term loan from Mom & Dad*. Suggest they give “interest free” as well.
*Loewen Group Recommended Technique 😉
– Quotes from a contractor are required prior to the commitment / approval is offered.
– The maximum you can borrow is 10% of the purchase price up to $40,000. Some exceptions can be made for higher amounts.
– Gifted down payments are allowed.
– Must be improvements that increase the value of the home such as updating your kitchen, bathroom, new floors, etc. Putting in a hot tub or pool will not increase the value – nice to have but improvements must be to the home not the property.
– We do have a “Refinance Plus” improvements program if you want to update your current home. *You can learn more about refinancing in our previous blog here
Each of the insurers have different guidelines that can help with the decision to do a purchase plus improvements. We are also here to help should you have any further questions!
CMHC: CMHC Improvement Program
Genworth: Purchase Plus Improvements Program
Canada Guaranty: Purchase Advantage Plus Program