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Are you looking to renovate your current house OR a house you are wanting to purchase? This is called a Refinance plus Improvements and a Purchase plus Improvements.


What is it, and how does it work?


You've found a house that you like but it needs improvements. The Purchase Plus Improvement program will allow you to add the renovation cost to the purchase price, so you can benefit from a low mortgage interest rate and make only one payment.

You will need to supply the mortgage lender with a quote and/or a renovation contract. This will be used along with the purchase contract for the home you are about to buy. The mortgage lenders and banks take the purchase price and the renovation cost and combine them for one total price to qualify for.


If, for example, the house is priced at $300,000 but it needs another $20,000 in renovations. You can add in the renovations cost to the purchase price and CMHC or Genworth will lend against the total value (purchase price plus the renovation cost).


Purchase price $300,000
Renovations $20,000
total cost $320,000
Lending value $320,000
Max. Mortgage $304,000 (95% of $320,000)
Min. down payment $16,000


One of the first misunderstandings with Purchase plus Improvement, is that most people do not realize that they will have to pay for the renovations themselves, until the work is completed. The lender will mandate that the solicitor/lawyer "hold back" the additional cost added to the mortgage, that represents the improvement amount. Once the work has been completed, an appraiser will have to supply the solicitor with an inspection report, that tells the solicitor all the work has been completed as agreed. Only then, can the solicitor release the funds from his trust account, to pay for the improvements.


Refinance plus Improvements works the exact same way. You are able to refinance up to 80% of the value of your current home in Canada. Similar to the example above, you can get financing to 80% on the current appraised value plus the renovation cost. An "as complete" appraisal will be done at the beginning of the process to verify that 20% equity will be left in the property once the mortgage is dispersed and renovations are completed. If the equity position is ok, the mortgage can now proceed and be approved. Thus allowing you to start the renovations on your home.


**Some mortgage lenders do allow draws for larger home renovations. In other words, if you are planning a renovation of 80,000, this is a large lump sum of money for the contractor to carry or yourself to carry. Certain lenders have a niche product for this, allowing you to get money at smaller stages throughout your renovation. Example: 80,000 renovation and receiving 3 draws as you progress. 1st draw once $30,000 of work is completed based on the quote originally provided, 2nd draw at another 30,000 of work completed, and the 3rd/final draw released once the final 20,000 of work has been completed. An inspection by an appraiser is completed at each draw confirming the work is done as said. This allows you or your contractor to float the cost in smaller amounts of money, similar to building a house with a draw mortgage.



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