With summer off to a great start, this is no doubt the most hectic time of the year for real estate agents and mortgage brokers. The busiest closing months for new purchases are at the end of June and July. The great weather during the preceding months makes it very easy for clients to list and show off their homes for sale. With the increased number of homes listed and so many potential purchasers competing for properties, it can be difficult for clients to find their dream home with all their desired features. This is where our PURCHASE-PLUS IMPROVEMENT MORTGAGE can be very beneficial.
A purchase-plus improvement mortgage allows clients to complete certain home renovation projects that they want done to their new property without having to use any cash out of pocket. The lender takes the purchase price of the property and increases the mortgage by the cost of the renovations they wanted completed. Once the purchase has closed and the buyer has access to the home they typically have 90 days to complete the renovation project. Once the work is complete we send out our appraiser to ensure everything on the list of renovations has been completed. The lawyer will then release the money added to the original mortgage to pay the contractor. The entire process is great as it allows people to get their dream home by adding it to their mortgage. Below is an example:
|Negotiated purchase price||$400,000|
|Cost of proposed renovations||$40,000|
|Revised purchase price||$440,000|
|Amount to be financed||$418,000|
|CMHC Insurance fee 3.6%||$15,048|
|Total Mortgage Amount||$433,048|
There are some very important factors to note about this product that will make the process go more smoothly.
- Maximum increase to the mortgage for improvements is 10% of the purchase price up to a maximum of 40K with most lenders.
- Work typically has to be completed 90 days after closing.
- Lenders want quotes from licensed contracting companies. Clients cannot do the work themselves; lenders want to see official quotes drawn up with exact prices and costs to complete. It can be quite difficult for clients to get access to the home after their Offer to Purchase has been accepted. It is important to try and get all the quotes for the work to be done BEFORE they make an offer, as clients usually have a 5-7 day time frame to waive financing conditions. The lender has to approve these quotes and renovations so if clients need to waive before getting their quotes completed, they could be in for a major disappointment.
- Ensure the renovations increase value to the home. Lenders typically do not like major renovations that have anything to do with structure so try and keep it to minor projects such as kitchens, bathrooms, new shingles etc. that will bring great value to your new home!
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