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Hiding the cost of renovations inside your mortgage - the Purchase Plus Improvements Program
January 17, 2015 @ 11:15 AM by:

When looking at purchasing a home as a first time buyer, many of the listings with have such catch phrases as 'starter home' (aka small) or 'some TLC required' (aka the place is a bit of a dump).   Given the difficult in saving money for a down payment and closing costs, many first time buyers simply don't have the extra money to pour into much needed renovations, or are forced to borrow money on their credit cards or credit lines (at high rates of interest) to complete the needed work.

Although most banks and mortgage lenders don't actively promote it, most do participate in the purchase plus improvement programs that are offered by CMHC, Genworth and Canada Guaranty.   Here is a quick rundown of how they work.

Say for example you have made a deal to buy a house for $150,000, and were originally planning on making a 5% down payment (or $7500).   You were also planning on spending $10,000 on renovations right away to fund a new roof and a new furnace.

You DO have option of hiding the cost of these improvements inside the mortgage.   You will have to get written estimates for the work from qualified contractors.   The cost of those renovation is then added to the purchase price.  The down payment amount will now be based on a value of $160,000 in this scenario ($8000).

At closing, the money for the renovations is held back in trust by your lawyer.    Once the work has been completed, the bank/lender will send an inspector to verify the work has been completed, after which the money is released to either pay the contractor directly or to reimburse yourself if you have already paid for the work.

This is a great program for several reasons.   It not only allows you to avoid burning through cash or running credit card bills, but also allows you to finance the cost of renovations at a preferred rate of interest (which is likely less than 3% based on rates that are currently available).   

If you have found a property that needs some work and are thinking of throwing in an offer, please give me a call.   I can help you review some numbers to make sure you know exactly what you are getting into before putting pen to paper (not to mention the fact that I can likely get you a better set of rates/terms than your bank is offering).