Have you said, “great home, great location, too bad the kitchen is so outdated?” Don’t overlook these properties, as there are mortgage programs available that can help you get into the home with the dream kitchen or hardwood floors you so badly want. These programs save you the inconvenience or hassle of arranging a second loan after closing to do the improvements.
Both CMHC and Genworth Insurance offer a program called “Purchase Plus Improvements” that allow you to purchase a home, renovate it the way you like and incorporate the cost of the renovation in your new mortgage – for as little as 5% down payment based on the improved value.
For example, if you purchased a home for $150,000 and wanted to do $30,000 worth of renovations, GE/CMHC will insure a mortgage based on 95% of the “improved value”. In other words, your down payment in this example would be 5% of $180,000, or $9,000.00. The key for this working is that the renovations you make add value to the home. In this example, the insurer and lender would have to agree that the renovations you wish to make would increase the value of the home by $30,000.
Improvements must be structural and permanent to the home or property. In other words, new windows, flooring, roofing, kitchen renovations, bathroom renovations or a new garage would all apply, but a new refrigerator would not as it is not a permanent part of the home. By this example, a built in dishwasher or built in ovens as part of the renovation would be eligible because they are permanently appended to the home.
How Does It Work?
When you have decided to make an offer on a house, make the offer conditional for a longer than normal conditional period if possible, as you will have to arrange to get cost estimates on the renovations you are looking to do. Once the cost estimate along with a detailed description of the work and materials list are received, forward this to your Mortgage Broker who will submit it to the lender and CMHC/Genworth for approval.
The lender will submit the total loan amount to your lawyer with holdback instructions for the renovation portion. This means that your lawyer will be able to release the funds required to purchase the home on possession, but will hold back the renovation funds until instructed by the lender to release the funds back to you for payment of the renovations. In order for the lawyer to release the funds, the work must be inspected to ensure it is 100% complete and an appraiser must confirm the improved value. It is important to understand that you may have to finance the renovation work and then be reimbursed once the work is completed, or you may be able to find a contractor who is willing to be paid for the work on completion.
The advantages of utilizing the Purchase Plus Improvement programs are that the cost of the renovations are incorporated in a low interest mortgage