Purchase Plus Improvements Canada
Purchase Plus Improvement mortgages are one of the most under rated secrets in Canadian home shopping.
It almost seems like conventional wisdom, that if a new construction property is purchased in the earlier stages of development, that by the time it is complete, the buyer stands to earn some considerable profits from this act of patience. I’ve seen many home buyers that are all over this strategy, and that have done well off of it. But as great as this strategy is, I believe an equally great, if not even better strategy is the Purchase Plus Improvements Mortgage Canada opportunity.
Under the purchase plus program, the buyer is able to purchase an existing house with the help of a mortgage, and then use some additional mortgage money to upgrade the house once the purchase is completed. There are several great benefits here:
- Choice: You get to pick any house in a mature neighbourhood, and customize the finishing exactly to your tastes.
- Fresh and clean: The upgrades you have made, weather its a new furnace or a new kitchen, are brand new. So your upgraded house will feel fresh and last for years.
- Return on Investment: Your upgrades are investments into the property. If certain upgrades are made, for example to kitchens and bathrooms, this can increase the value of the property in excess of the money invested. The resale value may be instantly higher.
- Go Green: You have a big opportunity to go Green. By using the improvement money to make energy and water efficient upgrades, you can add to your homes value while lowering your cost of ownership over time.
So with this in mind, as you scour the housing market, consider what each property could be with your creative handiwork. Be creative and have fun!
Purchase Plus Improvement Rules and Process
With the basis of the program understood, it’s important to know the rules if you are conceding using it.
- The 10% rule means that you are able to receive additional mortgage money, up to 10% of the value of the home. So for example, if the purchase price is $250,000, then you would be able to receive up to $25,000 for improvements.
- As little as 5% down payment can be used. This means that you can receive 10% of the value of the house for improvements, even though you are applying half this much for down payment.
- Use of Improvement Funds: The mortgage money must be used for the stated improvements, and the improvements must be confirmed with the lender BEFORE you are approved for the purchase plus improvement money.
With this in mind, the procedure is pretty straight forward. I’ve included some tips and tricks here for getting your improvements completed more efficiently. Like anything in the financing world, and mortgage in particular – process and detail are extremely important.
- Find the right house and decide what you would like to improve. It is possible to use software to model what the outcome of your improvements will look like.
- Get improvement quotes form your contractors if you will be hiring someone to do the work. Or materials quotes from your home improvement store if you will be doing the work yourself.
- Place an offer on the house.
- When applying for financing, supply the improvement quotes (that are no more than 10% of the value of the property) to the lender to have approved along with the mortgage. It’s important to have the quotes available for the lender at this stage. If you applied for the mortgage without the formal quotes, then there is no way for the lender to approve your specific upgrades. The lender needs to know exactly what is going to be improved/upgraded, as they will not allow certain improvements. For example, a roof, kitchen, bathroom, painting, flooring, mechanical equipment is usually allowed. But a new swimming pool would not be allowed. It is all case by case.
- Your house closes, and you gain possession on the possession date. The purchase plus improvement mortgage money is held in trust at your lawyers office, and is not released on the closing date.
- You would complete the upgrades using your own funds, or borrowed funds. Or if you are not in a position to fork over the upgrade money before you receive the additional mortgage money from the lawyers office, consider this TIP: Have the contractor complete the work with a 10% retainer or similar arrangement. You have the money ready, and as long as the work is completed as quoted, you will have no problem paying for the contractor’s services.
- Once the upgrades are complete, an appraiser visits the property for a quick inspection, and then reports to your lender that the upgrades have been completed. Once the final bills (along with the appraiser inspection) are completed, the lender will signal to your lawyer to release the funds to you.
- You can now replenish or repay any debt you assumed during the construction phase.
- Have a glass of wine.
So there are a few steps here – but don’t let this overwhelm you. The process can be made easy with the help of a professional mortgage broker who has helped home owners arrange it done dozens of times. I have personally used this program myself on one of my properties and found it to be a good (and highly profitable) experience. Focus on the creative aspect and the benefits of this program. But make sure you have reviewed and discussed the rules and procedures as you go into it. Enjoy!