The purchase plus improvement mortgage is one of the best, usually untapped, opportunities when purchasing a home. You may find yourself a home that is in a great area, but the home may not be up to date or may need some structural repairs or improvements. This is where the purchase plus improvement mortgage could really help. Often this financing is provided at an interest rate equal to or similar to your mortgage rate, which currently is at historically low levels.
Most of the lenders we have encountered will usually lend up to either 20% of the purchase price of the home, or up to $40,000. CMHC offers financing for up to 95% of the improved value of the homes and the improvements must be less than or equal to 10% of the improved value of the home.
For example, if you purchase a $450,000 home, you could qualify for up to $40,000 for home improvement financing.
We recommend discussing with your broker to find the best option for you.
This is how it works:
Get approved for a home with as little as 5% down.
Get a written quote from a qualified contractor for the amount of the improvement costs. (It is important you get this from an experienced contractor that won't just provide you with a low-cost estimate to get the job. At the end of the day, you are going to have to pay for the difference if their estimate is short.)
When applying for a mortgage, provide the contractor's quote, as well as the scope of work to be completed upfront with the offer to purchase the home.
After the purchase is completed, the improvement funds from the lender usually are not released until after the project is completed. This means the homeowner will have to come up with any necessary funds to complete the project up until that point. **[At Hammerhead Construction, we are usually very flexible with this and will often carry the cost of your project up until completion with a written letter from the lender so that you don't require any cash out of pocket]
The work usually needs to be completed within 90 days, but exceptions can be made. Just ask your lender
How to get the most out of your purchase plus improvement mortgage:
Your purchase plus improvement mortgage can be used for almost anything. But some improvements will add more value than others.
If you have items of the home that may need to be repaired in order to upkeep the integrity of the home or for safety reasons, you may want to use your improvement funds for this first.
However, where repairs are not the concern, you may decide to increase the value of your home by improving a few of these areas:
Kitchen: New cabinetry, countertops, flooring, backsplash, paint.
Bathrooms: Toilet, Vanities, flooring, shower/tub, tile.
Basement Development: Finished or partially finished (Check here for our packages)
Garages: Add, replace or expand.
Decks, Patios and Fences
A combo of any of the above!
The above areas are likely to add greater value to your home than what they cost.
For example, a $10,000 into your kitchen may yield a 50% ROI, increasing the value of your home by a total of $15,000 ($10,000 + $5,000). Finishing the basement in your home also increases the resale value of your home by adding extra living space.
When you are looking at purchasing a new home, keep in mind this untapped opportunity to improve your living space and increase the future value of your home while taking advantage of incredibly low-interest rates.