Here’s a hypothetical situation for you: you’ve found the property of your dreams, it’s not perfect but with a little work it’s exactly what you’ve been looking for. Now you crunch some numbers and realize that with the cost of the renovations your dream is actually more of a nightmare for your budget. Fortunately there are programs that exist which may be able to help you purchase a home that otherwise may have been overlooked, due to the fact that it was in need of a little TLC. Many people are unfamiliar with all of the mortgage products available to them. We want to lift the veil on the unknown and shed light on all of the mortgage options at your disposal.
One such relatively unknown but potentially beneficial program is the Canada Mortgage and Housing Corporation (CMHC) Improvements program. This program gives qualified buyers the ability to borrow up to 10 per cent of the value of a home to put towards the cost of renovations and include it in their mortgage loan amount.
HOW DOES IT WORK?
Buying a ‘fixer upper’ can be a daunting prospect, especially if you’re a first-time buyer. Whether it’s a new bathroom, kitchen, floor, roof, or windows, the CMHC Improvements program gives you flexibility to purchase a home and include the cost of renovations in your purchase. Where before you may have overlooked certain properties because the renovation cost was too high, the CMHC Improvements program enables mortgage professionals to offer greater financing choice to borrowers who are building new homes or who want to undertake small or large scale improvements to existing homes where the improvements will increase the value of the property.
Formerly called the Purchase Plus Improvements program, this flexible financing option is offered by the Canada Mortgage and Housing Corporation (CMHC), which is the government insurer of mortgage loans taken out with less than a 20% down payment. The program gives qualified buyers the ability to borrow up to 10% of the improved value of a home to put towards the cost of renovations and include it in their mortgage loan amount.
To give you an example of how it works, let’s say the purchase price of a home is $500,000. The program allows you to borrow up to 10% of the purchase price so the maximum improvement amount would be $50,000. Your down payment would then be based on the total as-improved value of the property at $550,000.
WHAT’S THE CATCH?
Improvements must be structural and permanent to the home. In other words, a new bathroom, kitchen, floor, roof, windows, or garage are acceptable, but a new dishwasher or dryer would not be. Appliances are not permanent fixtures and could be removed should you ever decide to sell.
Before you close on the property, you must submit a quote for the renovations from your contractor to both the mortgage lender and CMHC for approval. In order to do this, you must add a condition in your Agreement to Purchase that says you want a contractor to inspect the property before closing. The improvement amount is added to the mortgage loan once it has been approved by both the CMHC and the lender.
On closing day, the improvement amount is advanced to your lawyer, who will hold onto it until the renovations are complete – this means that you don’t actually get the money until the work is done, so you will need to secure funding (such as from a line of credit) so that the initial deposits/costs can be paid and work can begin. When the renovation is complete, the lender sends an appraiser to the property, to confirm that the scope of the work outlined on your quote is done. Once confirmed, the lender will authorize your lawyer to release the improvement amount to you.
A lot of people are trying to find creative ways to get into the increasingly expensive market here in the Okanagan, the CMHC Improvements program gives you the ability to look at properties that you may have originally passed over because they need some work. To learn more or to see if this program is right for you, contact us.
John Antle Mortgages – Kelowna’s Mortgage Specialist
We specialise in offering mortgage solutions that go above and ‘beyond the bank’. By this we mean we are able to provide flexible solutions at great rates, in fact our rates are often better than what traditional banks have to offer. The bank can be intimidating and even frustrating, working with a mortgage broker opens up your options and allows you to find a solution that works for your unique situation. We work with a variety clients including first-time buyers, those looking to transition from renting to owning, self-employed business people, as well as investors in rental and/or vacation properties.
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