Purchase Plus Improvements Mortgage FAQs
Turn your new home into your dream home.
The Alberta housing market is experiencing a record low supply of new homes on the market. It may be difficult for Home buyers to find the one that ticks all the boxes and feels just right. But maybe, there’s one that has potential to be perfect—with a little bit of TLC.
What is a Purchase Plus Improvements Mortgage?
The Purchase Plus Improvements Mortgage option gives home buyers the flexibility to upgrade or improve their newly purchased property. It allows them to borrow the cost of renovations (up to a certain percentage) and put that into the purchase price for one simple payment with as little as 5% down.
There are some restrictions to consider. As a rule of thumb, the renovations permitted under this program must enhance the value of the residence and are typically allowed up to $40,000 but we often see exceptions granted for up to $100,000 in improvements.
How does a purchase plus improvements mortgage actually work?
As you are in the process of shopping for homes with your real estate agent, think about things that you may want to or need to improve in the homes that you’re interested in. Once you’ve found the property for you, take a third-party contractor with you to the property and explain the work that you would like to complete. If the sellers accept your offer, you’re ready to go. You’ll need to send your mortgage broker both the signed offer to purchase and the comprehensive quote from your contractor, then they will get to work on your purchase plus improvements transaction.
On your possession date, your lawyer will advance $600,000 to the sellers. Now, you’ve got 90 days (from that possession date) to have the work completed. When the project is complete, your mortgage broker will send an inspector to the home and confirm the work has been done. Once confirmed, your lawyer will release the “purchase plus” funds of $35,000 to either you or your contractor.
Let’s look at an example:
Purchase price of your new home: $600,000
Price of improvements: $35,000
Total purchase price of home will be: 635,000
Total down payment required will be 5% of $635,000 (this is a key point)!
What properties are eligible for a Purchase Plus Improvements Mortgage?
The property must be a maximum four units, and at least one of those units must be occupied as the principal residence
The property can be a new construction home or an existing home
How can you use a Purchase Plus Improvement Mortgage to fund secondary suites?
If home buyers want to use a Purchase Plus Improvements Mortgage to build a secondary suite for the purpose of rental, the good news is they can actually use that potential rental income (before completing the renovations) to qualify for a higher mortgage. This creates an opportunity to afford a home that a buyer might otherwise not have been able to.
When do you receive the renovation portion of the funds for a Purchase Plus Improvements Mortgage?
The funds for renovations are dispersed to the mortgagee after the renovations have been completed. It’s important as the homeowner to ensure that you communicate with your contractors about when payment is expected and to have a plan in place if payment is required earlier (i.e. lines of credit, savings, credit cards).
At Spire Mortgage, we have lenders that will pay out the "improvements" portion over time. For example: If you're doing a 6 month renovation that totals $75,000 and you have the garage completed but aren't replacing the windows and hot water tank until later, the lender may advance $45,000 for the garage at the time of completion (say 3 months into the reno) and then the remainder of the funds when the rest of the work is completed. This helps greatly with financial flexibility during the project.
How long do you have to get the renovations completed after funding a Purchase Plus Improvements Mortgage?
Typically, the renovation work needs to be completed within 90 days of the mortgage funding. Depending on the circumstances, there may be exceptions to this.
Can you use a purchase plus improvements mortgage if you’re doing the work yourself?
If you’ve decided to complete the renovation work on your new home yourself, it’s important to note that the lender will only cover the cost of the materials. Make sure to keep all of your receipts when you purchase any materials since you will have to provide proof of payment before the lender will advance the funds.
What happens if you decide not to complete renovations after your Purchase Plus Improvements Mortgage has already funded?
If you decide not to go ahead with renovations after your mortgage has already funded that portion of your mortgage will be put towards the principal. However, its important for buyers to note that as the mortgage agreement has already been finalized, your payment will remain the same for the duration of your term.
What are the steps to obtaining a Purchase Plus Improvements Mortgage?
Step 1: Get a pre-approval before house shopping to know what you can afford.
Step 2: Make an offer on your future home, determine what renovations need to be done and get an idea of how much those renovations will cost.
Step 3: Your mortgage broker will secure your approval based on the current condition of the house. Following that, it's essential for the home buyer to contact relevant licensed contractors and obtain firm price quotes for the required renovations. Ensure that the quotes detail the specific work to be completed.
Step 4: Your mortgage broker will revise your mortgage approval to incorporate the renovation costs outlined in the quotes and finalize your mortgage details.
Step 5: Upon closing and possession of your new home, you can immediately begin the approved renovations.
Step 6: Once the renovations are done, a representative from the bank is typically sent to your home to ensure that the work has been completed as outlined.
Step 7: You will receive the funds necessary to pay the contractors. Your lawyer will be directed by the lender to release the funds earmarked for the specified renovations.
Step 8: Enjoy your dream home!
