Purchase Plus Improvement Mortgage

Benefits

A purchase plus improvement mortgage is an option that some mortgage lenders offer homeowners for completing renovations to a property. In essence, the lender (and sometimes the insurer) evaluates the cost of your proposed renovations and then adds that cost to your mortgage. This essentially locks you into adding value to the home which, in many cases, works out for the person buying the property because they were probably going to do those renovations anyway.

How Much of a Down Payment is Needed?

You can get qualified for this program with only a 5 % down payment, which makes this program accessible for many people!

How Much Money Can I Gain Get for Renovations?

You are eligible for up to 20% of the purchase price of your home, but if the renovations are over $40 000 an appraiser is sent out to look at the property and determine the value of the renovations being completed.

What are the eligible properties for this Mortgage?

• Maximum four units with at least one unit occupied as the principal residence.

• New construction or existing properties.

• The property of interest must be valued at less than $1 000 000.

Borrower Qualifications

The following criteria are used in determining if an applicant(s) qualifies for this type of mortgage:

Income and Employment

Standard income and employment verification requirements apply.

Credit

• > 80% LTV: At least one applicant is required to have a minimum credit bureau score of 600.

• ≤ 80% LTV: At least one applicant should have a minimum recommended credit bureau score of 680.

Down Payment

Qualified home buyers may use traditional down payment sources including personal savings, RRSP withdrawal, non-repayable gift from immediate family member(s), sweat equity, existing home equity, proceeds from sale of property.

Government grants may be considered if pre-approved by Genworth Canada.

Types of renovations approved

Usually, any renovation that adds value to a home is one that gets approved, but below is a list of renovations that normally get approved for this program:

• Roof

• Flooring

• Wiring

• Windows and doors

• Energy efficiency

• Basement

• Kitchen

• Bathroom

• Living room

It is important to note that you can also combine any of these renovations as well!

Step-by-step instructions to Get THIS mortgage

Step 1: Obtain a Mortgage Pre-approval

From your mortgage broker (or bank that completes purchase plus improvement mortgages) the first step is to always get pre-approved for the amount that you are looking to take out for the mortgage. This should include the mortgage default insurance and quoted cost of the renovations that you are looking to do to your house of interest!

This step can be completed after Step 2 but is not recommended.

Step 2: Find a Home that Needs Fixing and Figure Out Cost of Renovations

There are many fixer-uppers in Toronto just waiting to be loved! Many young people may be priced out of the majority of the Toronto housing market so being able to find a fixer upper and putting in some renovations to make it your own might make more sense.

Lenders require that you get written quotes for the scope of renovations that need to be completed from a qualified contractor, which is where we come in! BVM Contracting will be able to provide a quote for any of the above renovations and will be able to help guide you through this process since we have done it before!

It is important to note that the cost of the renovations added to your mortgage cannot exceed your maximum approval amount.

It is also worth noting that if the renovations are valued higher than $40 000 that you will need to get an appraiser in to assess the house and verify the costs of renovations. This should be completed before the offer is sent in and accepted, just in case the value of the renovations (and therefore how much money you receive) is less than the quoted amount. This happened with our clients at 93 Prairie Drive but they ended up still moving forward with their offer.

BVM Contracting has a Renovation Consultation Service tailored to helping people determine the cost of their renovations at this stage of the home buying process. Learn more about this service here.

Step 3: Put an Offer in on the Home!

Once you get quotes in and determine that your mortgage plus improvements are less than your pre-approval amount, put an offer in on your fixer-upper home! Once the offer is accepted you will have to provide the renovation quote and the accepted offer for buying the property. Your broker or bank will have the lender approve the mortgage with the outlined costs of the renovation.

Step 4: Start Your Renovation Engines!

Once you take possession of your home, you can begin the renovations. Before this happens, ensure that you have the correct building permits in place for doing the work if you are making any large adjustments to the home (structural, plumbing, etc.). With BVM Contracting’s Design-Build Services, we will be able to get you connected with an architect that can help you get the required permits for your renovations.

The Lender will instruct the Solicitor (Lawyer) to hold the additional Renovation funds for the duration of the project, until the lender confirms the works has been completed. Once the renovations are completed, notify your mortgage broker and they will order an inspection from an appraiser to verify the work outlined in the quoted scope of work is completed as per the quote that was provided by your contractor.

It is important to start the renovations as soon as you take over ownership if you decide to go with the purchase plus improvement mortgage.

Step 5: Final Inspection and Disbursement of Funds

With the inspection completed, the lender will receive the inspection report from the appraiser, and validate that the work has been completed in a good manner and as per the quotes provided. They will instruct the lawyer that they are able to release the funds to you, to pay the contractor. The initial release of funds is 90% of the improvement portion of the mortgage. The remaining 10% is subject to a hold-back pursuant to the construction lien act S. 22. You will be able to get access to the remaining 10% after 45 days, from the date of when the lawyer was told to release the initial 90% of funds.

Note: Make sure that your contractor knows the timeline for completing the outlined renovations, so that you do not default on getting the funds after the renovations. Usually the timeline is 90-120 days depending on the renovations being completed.

It is equally important to note that the lawyer will charge a fee to disburse the funds, which is around $150.

Additional Advice for People Interested in This Mortgage

Since BVM Contracting has completed renovations with purchase plus improvement mortgage holders, we have in-depth knowledge in how to most efficiently complete these renovations on a tight timeline and budget. We also offer renovation financing to additionally supplement any additional renovations not covered by the purchase plus improvement mortgage.

Additionally, we have created a case study for our recently completed purchase plus improvement project at 93 Prairie Drive. If you want to learn more about how a real-world couple took advantage of a few different financing options to afford the renovations of their dreams and also subsidize their mortgage with a legal basement apartment.

If you are interested in getting a quote for your potential renovation of a property feel free to start the conversation by contacting one of our Renovation Consultants or filling out our contact form!

ABOUT BVM CONTRACTING

BVM Contracting is a full-service General Contractor or Home Builder located in Toronto. We provide home renovation and building services for major home renovations (kitchen renovations, bathroom renovations, basement renovations, full interior renovations, home additions, and new home construction). Our goal is to help guide our clients through the process of renovating their home, from concept to completion.

Further than providing General Contracting and Project Management for major home renovations, we also offer value-added services such as renovation financing, renovation rebate consultations and services, building permit and design services, smart home installation services, and real estate investor services.

To learn more about our offering by visiting our services page.