The Purchase Plus Improvement program allows the homebuyer(s) to purchase a property and include the cost of the improvements in their mortgage financing. Improvements such as kitchen and bathroom renovations, hardwood floors, windows, painting, etc. all qualify. Generally anything that will improve the value of the home is acceptable. This program is also very good for homes that might require improvements that are more functional in nature, such as a new roof or a new septic system.
• Eligible for homebuyers with as little as 5% down payment.
• Eligible for conventional mortgages with 20% down payment or more.
• Eliminates the need for a purchaser to obtain financing after the purchase to do the work, which can often be at a higher interest rate and/or higher payment.
• Allows a purchaser to look at homes which they might not have considered otherwise i.e. older homes in established neighbourhoods that may require updating.
• Allows the purchaser to put their own stamp on a property.
The Purchase Plus Improvement program requires the buyer to obtain quotes which are submitted to the lender for approval. When negotiating the terms of the purchase of the property, it is important that you include the ability for a contractor or trades person to have access to the property for the purpose of supplying a quote. The lender will then review the quote and the improvements as part of the approval process. All of the numbers are based on the improved value. The maximum increased amount is 10% to 20% of the original purchase price depending on the lender and the insurer, but there can be some flexibility.
Example: Purchase price is $300,000. Improvement estimate is $30,000. Mortgage numbers are based on $330,000. If the client requires 95% financing the 5% down payment would be $16,500 (5% of $330,000) not $15,000 (5% of $300,000).
There are no advances until the work is completed and this is very important for the buyer to understand. If the contractor requires a deposit or interim payments, the buyer will need to have access to those resources until the work is complete and the mortgage funds are advanced. The funds are held back by the lawyer. Lenders typically require the work to be done within 120 days. Receipts are not always required (this depends on the lender) and an appraiser is sent out once the client confirms completion. The inspection by the appraiser will cost the client in the neighbourhood of $200.