Purchase Plus Improvement Program

Kitchen before and after picturesWhat is a Purchase Plus Improvement Program?

A purchase plus improvement program is also known as a Renovation Mortgage.  There are many homes offered for sale in Ontario that have great potential but are in need of repairs or renovations. These homes are generally sold at prices that represent excellent value. While the value of these homes is attractive, financing the necessary work has often been difficult.  It be nice if it were possible to buy that “fixer-upper” at a great price, immediately have it renovated into your dream home, and do it all with one manageable mortgage, and a minimum down payment?

Well, it’s possible with a CMHC “Purchase Plus Improvements” mortgage. Now you can purchase a home, renovate it the way you like and pay for it all in one mortgage payment at first mortgage rates. All of this can be done by putting down as little as 5% of the “as improved” value.

For example, if you purchased a home for $120,000 and wanted to do $30,000 worth of renovations, CMHC will insure a mortgage based on 95% of the “as improved” value. In other words, with a down payment of $7,500 (5%) CMHC will insure a mortgage of $142,500. The key for this working is that the cost of the renovations has to be reflected in the “as improved” value of the house. In this example, CMHC would have to agree that the house would have a value of at least $150,000 after the $30,000 worth of proposed renovations were done.

The insured loan will be based on the lower of either the purchase price plus the actual cost of improvements or the “as improved” market value.

Remember, however, that in the case of 90-95% financing is only available if the lending value does not exceed the price ceiling for your area. Price ceiling are either $175,000 or $300,000. To determine which ceiling limit is applicable in your area, contact me directly.

 How Does It Work?

When you have decided to make an offer on a house in Ontario, make that offer conditional on getting a CMHC “Purchase Plus Improvement” Mortgage. Since the offer will be conditional on arranging this type of financing you are not at risk in the event that CMHC feels that the cost of the proposed renovations are not fully reflected in the “as improved” value. Next, have a qualified contractor put together a description and a cost estimate for the proposed repairs or renovations. Bring your “contractor’s Estimate” along with the “offer to Purchase”. An application will be submitted to CMHC on your behalf.  For more information on this mortgage and others, please contact us directly.

Purchase Plus Improvement Program Example:

Description Cost Explanation
Purchase Price $120,000
Cost of Renovations $ 30,000
Total House Cost $150,000 Purchase Price + Cost of Renovations
“As Improved” Appraised Value $150,000
Maximum Mortgage Amount advanced to lawyer $142,500 95% of Total House Cost
Down payment Required $   7,500 5% of Total House Cost
CMHC Insurance Premium $  3,918.75 2.75% premium of maximum mortgage amount of $142,500,based on 25 year amortization
Total Mortgage Amount $146,418.75 Monthly payments are calculated from Total mortgage amount