Using a Purchase Plus Improvements mortgage to finance renovations in your new home.
When shopping for a home, most people will have a checklist of must haves and know what they want. But what happens when you find what you’re looking for, almost. The home is in the location you want, but it needs an ‘improvement’. Traditional financing can sometimes make these types of home unaffordable or the process worrying. That’s because you first have to qualify for the mortgage and then as soon as you take possession, you have to qualify for some kind of home improvement loan. Not only is it difficult to qualify for two separate loans at the same time, it also makes buying more expensive.
In 2011, $63 billion was spent on renovations in Canada, exceeding new home construction spending by approximately $20 billion. Renovations are a great way to update or improve the interior and / or exterior of a home, add space, and / or address problem areas.
Fortunately, the Purchase or Refinance PLUS Improvements program is designed for just this purpose. This program helps qualified homebuyers make their new home just right for them, by making customized improvements, immediately after taking possession of their new home! All this is done with one manageable mortgage and with as little as 5 per cent down.
The improvements can’t include structural changes to the home, but can include:
- Update or renovate kitchen
- Update or renovate a bathroom
- New flooring
- New paint
- Finish or renovate the basement
- New patio or deck
- New energy windows/doors
- Addition of garage, etc.
To qualify, the following conditions must be met:
- Down Payment can be as low as 5%
- The ‘Improvement’ is generally limited to 10% of the purchase price
- Owner-occupied properties only
- Down payment is based on the as-improved value
- A list of quotes for the improvements must be provided at the time of the application
- Other conditions apply.
For example, the Purchase PLUS Improvements program lets qualified buyers borrow up to 10% of the purchase price and use that money to cover the cost of renovations. Let’s say the house’s purchase price is $450,000 and the renovations you have in mind cost $40,000. That means the post-renovation value would be $490,000
Traditional Scenario – Straight mortgage with $40,000 line of credit:
- Purchase price $450,000
- Down payment $22,500 (5%)
- Mortgage payment of $2003.90
- Line of Credit for $40,000
- Monthly LoC Payment (interest only payments) of $206.67
- Total monthly payments of $2,210.57 (& you are not paying down the Line of Credit balance)
Purchase plus improvements – Including the renovation in to your mortgage
- Purchase price PLUS Improvement $490,000
- Down payment $24,500 (5%)
- Total monthly payments $2,182.03 ($178.13 LESS)
- Lower monthly payment
- Living in your dream home
To qualify, you have to provide a quote from a contractor at the time of submitting the application to the lender. Note, you don’t receive the funds for the renovation until the renovation is complete.
To see whether this type of program can help you affordably improve your new house into the home of your dreams, talk to me, I will provide you with a no-charge analysis of your needs and financial situation.
Mortgage is based on 5 per cent down payment with a fixed rate of 2.59 per cent, closed for 5 years and 25-year amortization.
Line of credit is based on interest rate of 6.2% (Prime of 2.70% plus 3.5%), interest only payments
Co-written with Martin Breeze, Mortgage Broker, TMG The Mortgage Group
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