What is it, and how does it work?

Add on the cost of the improvement to your mortgage , this is how it works:

You’ve found a house that you like but it needs improvements. The Purchase Plus Improvement program will allow you to add the renovation cost to the purchase price, so you can benefit from a low mortgage interest rate and make only one payment.

Before I can submit this type of transaction to the lending institution, you will need to supply me with a quote and/or a renovation contract. Since, in today’s market, subject removal days are short, you will need to have the quotes/contract available a few days before subject removal date to give the lender some time to process the transaction. It is possible that the insurer, Genworth or CMHC will want to perform an appraisal of the property, at their cost, to confirm the work to be completed.

If, for example, the house is priced at $300,000 but it needs another $20,000 in renovations. You can add in the renovations cost to the purchase price and CMHC or Genworth will lend against the total value (purchase price plus the renovation cost).

Purchase price $300,000

Renovations $20,000

Total cost $320,000

Lending value $320,000

Max. Mortgage $304,000 (95% of $320,000)

Min. down payment $ 16,000

For amounts over 20% of the purchase price or $40,000, Genworth will want estimates from a renovator, or a supplier like, Home Depot or Rona if you plan to perform the renovations yourself.

One of the first misunderstandings with Purchase plus Improvement, is that most people do not realize that they will have to pay for the renovations themselves, until the work is completed. The lender will mandate that the solicitor "hold back" the additional cost added to the mortgage, that represents the improvement amount. Once the work has been completed, an appraiser will have to supply the solicitor with an inspection report, that tells the solicitor all the work has been completed as agreed. Only then, can the solicitor release the funds from his trust account, to pay for the improvements. My advice in these circumstances, is to take advantage of family, or lines of credit to finance these costs until completion.

If you are unsure how this all works, give me a call and I'll be happy to explain it to you!