Have you bought a home that needs renovations? Don’t panic, we will help you pay for the renovations only with one convenient mortgage with 5% down!
Purchase Plus Improvements is for clients looking to buy a new home that has potential but still needs TLC. With this program, you can make renovations immediately after owning your home and your costs for that will roll into one trouble-free mortgage.
- Existing properties or new construction
- Maximum 4 units and at least one of them working as the main residence
Acceptable Loan Purpose
- Available for 30 years
- Buying transactions to 95% or refinances to 80% LTV
- First Step: You must have a clear conception of the needed renovations in your new home and have an idea how much they will cost you.
- Second Step: True North Mortgage can give you a permission based on the house “as-is”. After that, they give you the exact price quotes for the renovations. The quotes must precisely say the work that needs to be complete so make sure of it.
- Third Step: TNM will revise the mortgage permission to add the price of the renovations.
- Fourth Step: You own the home now and can start with the renovations. Anyone can do the work on the condition that it is a perfect job.
- Fifth Step: When the work is finished, the bank send a representative to make sure that everything is under control with the renovations.
- Sixth Step: The money is yours. The lender will instruct your lawyer to release the money.
The mortgage can realize your renovations
Let’s say the house is in perfect condition, situated in a good neighbourhood and even it is pricey, you feel you can bear the cost.
But what if the house has a terrible bathroom from the 1970s? The old bathtub, leaky taps, and broken ceramic tile, you will face additional expense that didn’t count in the original budget.
What are your options?
You can always walk away from that house and find something new you can afford. The complete bathroom renovation may cost up to $15,000 so you will need to take an additional debt. You must carefully think if you want to do that.
A line of credit is another alternative since they with it you can quickly get a cash. However, not always a line of credit is the smartest choice. According to David Chilton, the worst choice are “a line of credit and a home renovation”, explaining that the renovation will be a never-ending cycle.
Finally, you can apply to the PPIP – Purchase plus improvements program, known also as high-ration, renovation, or improvement mortgage. With this option, you will cover the house’s sale price and all the renovations that could raise the cost of the property.
With the PPIP, the homebuyers can benefit from the low-interest rates linked with a mortgage and pay one sum monthly payment.
However, this program has a few steps – the first is to make the buying offer provisional on getting permission for the mortgage program. The second step is to get the quotes from a contractor so you can finalize the price for the renovations.
Then, the Canadian Mortgage and Housing Corporation (CMHC) approves a loan of 95% of the ‘as improved’ worth of the home, providing the money you are putting into the home improves the worth.
Then, the bank sends a representative to confirm the improvements you requested are completed as needed. After making sure everything is complete, the inspector sends a report to the bank so they give the money to the client.
The lender requires quotes to release the funds, but some lenders make exceptions for minor renovations. The inspection reports cost from $100 to $200.
The PPIP offers more advantages than the traditional line of credit.
Tina Tehranchian CFP financial advisor at Assante Capital Management Ltd clarifies the banks usually give a line of credit of 80% of the property’s market value, while the PPP/CMHC-insured mortgage goes up to 95% so the homeowners who got 5% of the down payment to buy the desired home.
However, she adds the high-ratio mortgages have certain disadvantages and are not the right choice for everyone. People who look to obtain 65% of the buying price plus improvement cost have to pay a 0.50% premium, while those who want more than 90% have to pay a 2.75% premium on the complete loan sum.
If someone looks for a loan on the lower end of the scale for paying the premium, this does not make sense considering most financial institutes gives a line of credit of 75% of the home value.
This program is inconvenient for business owners whose cash flow fluctuates. To these homebuyers, the line of credit alternative lets them pay the loan more rapidly than on a mortgage.
Another disadvantage with the PPIP is they tempt the buyers to take more money than they can afford.