Buying a fixer-upper? Consider a purchase-plus-improvements mortgage
After saving for a down payment and getting pre-approved to purchase their first home, Lance and Marion were excited to start house-hunting. They viewed several properties, from new builds to complete fixer-uppers and ultimately fell in love with a character home on a beautiful lot in a lovely neighbourhood. The house had great bones but had been on the market for months because it needed updating. While the couple was able to do some of the work, they weren’t sure where they’d get the money for additional improvements.
This is a common challenge for many homebuyers, however the Canadian Housing and Mortgage Corporation (CMHC) and Sagen (previously Genworth) offer an ideal solution for those who qualify. A Purchase-Plus-Improvements Mortgage, offers qualified borrowers up to 10% of the value of the post-renovation value of a home to a maximum of $40,000 to cover the costs of improvements.
In Lance and Marion’s case, the home they wanted to buy cost $300,000. Their realtor estimated that their renovation would improve the home’s value by $30,000 for an “as improved” value of $330,000. A Purchase-Plus-Improvements Mortgage allowed them to borrow $33,000 – or 10% – of their home’s post-renovation value. After satisfying all of the lending requirements, Lance and Marion were able to move into their new home and began working on their improvements right away. They installed a new kitchen and updated flooring, lighting, plumbing and electrical throughout the house.
Because the couple completed a lot of the work on their own, they saved on labour costs, making it possible to replace some windows as well. Within three short months, Lance and Marion were living in their newly renovated home. If not for the Purchase-Plus-Improvements Mortgage, they would not have had the funds to get all of this done so quickly. By simply adding $33,000 to their low-interest mortgage, their monthly payment increased by less than $200 and improved their living experience from the start. This is the power of a Purchase-Plus-Improvements Mortgage.
This is just one example of how this program can work. There are many different options and it’s best to speak with your Rapport Financial Advocate so we can help you determine the right amount to borrow.
Here’s How It Works
- Get pre-approved You will need to be pre-approved by Rapport first to determine your maximum approval amount.
- Determine your down payment
As with every house purchase, you will need a minimum of 5% of the total purchase price as a down payment. In a Purchase-Plus-Improvements Mortgage, your down payment is calculated based on the purchase price plus the amount of the approved renovation. - Find your house and determine a plan for improvements
Start shopping for your home. Once you find it, Rapport will request written quotes for the improvements, detailing the cost, work to be done and timeline (usually 90 days). Keep in mind that the purchase price plus the renovation cost cannot exceed your maximum approval amount. - Make an offer Once Rapport approves your plan for improvements, you can negotiate an offer on the house. If your offer is accepted, you can determine the closing date, when you can move in and start putting your plan in motion.
- Renovation funds are put in trust On your closing date, Rapport, will hold your approved funds in trust until you’ve completed the proposed renovations. That means you will need to pay up-front costs out-of-pocket. Interim financing for those who qualify may be available during this time.
- Your home will be appraised and funds released to you
Once an appraiser confirms that your renovations are complete within the agreed-upon amount of time, funds will be released to you. The inspection is an additional cost so be sure to budget for this expense. If the work is being completed in stages, Rapport, will disburse funds as invoices are provided and work completion is verified. - Enjoy your newly renovated home
You’ve done the hard work and have increased the value of your home in a short period of time. Now it’s time to enjoy it and be proud of your efforts.
Is A Purchase-Plus-Improvement Mortgage Right For You?
If you are looking for a way to get into the increasingly expensive housing market, this program opens you to a broader array of structurally-sound, affordable homes that are simply in need of cosmetic upgrades or repairs. With a Purchase-Plus-Improvements Mortgage, you have far more buying options to consider backed by the funds to complete the renovations that will make your new house your dream home. If you’d like to know more about this program, a Rapport Financial Advocate is ready to explain your mortgage options and help you determine if the Purchase-Plus-Improvements Mortgage is the best option for you.