Have You Heard the Story About Purchase Plus Improvements?

Editor's note - this post originally appeared in 2010. It's still relevant today so we've dug it out of the archives and touched it up a bit. - GM

Can't Find the Home of Your Dreams? Buy a Lesser Home and Renovate!

How do you get your first house and that roof reno, too? Well, just sit back and I’ll tell you a little story…a few months ago, a young Edmonton couple contacted our office and they had just fell in love with a cute little house that had a brand new Euro kitchen, a shiny bathroom reno and new hardwood throughout. If it had a white picket fence, it would have been the kind of house you’d read about in a British novel that will eventually be turned into a series for Public Television. The only problem was the previous owner had put all his renovation funds into the cosmetics of the home and not into the roof that badly needed patching and shingles. Our young couple was heartbroken because the house was all they had wished for but their savings only covered the 5% downpayment and the closing costs of the purchase- definitely no room for roofing. Should they take the chance on the shingles or should they take a pass on the quaint little dream house?

CMHC's Purchase Plus Improvements to the Rescue!

Alas, First Foundation was able to help with a mortgage product called “Purchase Plus Improvements”. This product allows applicants to add additional funds to their mortgage for the purpose of home renovations. In this case, the house was priced at $300,000 and the clients were putting down $15,000, so we needed to obtain a mortgage of $285,000 for our couple to actually buy the home. We then had estimates done for the roof patching and the shingles and they came in with a price tag of $10,000. The lender approved these estimates and allowed the mortgage to be increased by $10,000 to cover the cost of the improvements. The total mortgage then, was $295,000 which included the $285,000 to cover the cost of the purchase, plus $10,000 to cover the cost of the roof repairs.

Convenience - Sort Of

The major consideration with this type of product is the lender does not allow access to the renovation portion of the mortgage until AFTER the renovations are complete. In plain English, this means that you need to have access to money to do the renovations yourself first, like through a line of credit or a personal loan from family. Once the renos are completed and an appraiser has confirmed that they are done to spec, the lender will release the renovation funds to you. In the case of our happy couple, they took possession of the house, borrowed the reno money temporarily from their parents and when the roof was completed to the lender’s satisfaction, the $10,000 was released to them and they paid their parents back with it. Some renovators will accept proof that the P+I funds are in trust with your lawyer as credit.

If you would like more information about the Purchase Plus Improvements product, please contact one of Mortgage Brokers – we love to help our client create their own happy endings!

Note: While this was a true story, the names of the actual renovations have been changed… I don’t even know what a Euro kitchen is but I think you can find them at IKEA next to the Llanderflugens…

--Original author: Jennifer Rochford