Understanding the Purchase Plus Improvements Mortgage

Finding and financing your ideal home can be daunting, especially when you discover it needs significant renovations. The expenses can quickly escalate, posing financial challenges. Fortunately, there’s a solution: the purchase plus improvements mortgage.


What’s a Purchase Plus Improvements (PPI) Mortgage?

This type of mortgage enables you to include renovation costs in the home purchase price. It applies to both existing and newly constructed properties. The primary advantage? You can acquire a more affordable house and promptly increase its value by undertaking targeted renovations.


The Primary Purchase Plus Improvements Mortgage Programs in Canada

In Canada, three main providers offer purchase plus improvements programs. Usually, home buyers won’t directly engage with these providers unless their down payment is below 20%. Nonetheless, it’s crucial to grasp the distinctions among these providers and their respective programs.

  • CMHC Improvement: The CMHC Improvement program caters to consumers buying existing homes or constructing new ones. If you would like to learn more about the CMHC Improvement program, you can click here.

  • Canada Guaranty Purchase Advantage Plus: This program is designed to assist Canadian consumers in purchasing homes and enhancing their value through renovations. To learn more about the program, click here.

  • Sagen Purchase Plus Improvements Program: This program is an alternative for homebuyers seeking to enhance the value of their newly purchased homes through immediate improvements. To learn more about it, click here.


How Does a Purchase Plus Improvements (PPI) Mortgage Function?

A purchase plus improvements mortgage resembles a conventional mortgage, providing funds for buying a house and extra money to cover renovation costs. However, these renovations must be permanent and contribute to the home’s value, such as roofing, painting, new flooring, or installing a furnace. It’s important to note that non-permanent fixtures like appliances are typically not covered under this type of mortgage.


Applying for a Purchase Plus Improvements Mortgage

The application process for a Purchase Plus Improvements mortgage differs among lenders, but here’s a general overview of what to expect:

  • Step 1: Property Search and Renovation Assessment. Begin by locating the property you wish to purchase and identifying the specific renovations needed. This typically involves obtaining quotes from a contractor.

  • Step 2: Mortgage Application Based on Property Condition. Apply for mortgage approval, factoring in the renovation costs. Consult with a mortgage specialist regarding your options for a purchase plus improvements mortgage, and provide the contractor’s renovation quote during this process.

  • Step 3: House Closing. Proceed through the standard home buying procedures and finalize the house purchase.

  • Step 4: Commence Renovations. Upon taking possession of the property, initiate renovations promptly. Most lenders require renovations to be completed within 90 to 120 days. The lender will typically send the funds necessary for the renovations to your lawyer and hold them in trust until the work is finished.

  • Step 5: Home Assessment. After the renovations are finished, the lender will send an evaluator to assess the work. The lender will release the funds to pay the contractor for their services upon approval.


What Are The Requirements For A Purchase Plus Improvements (PPI) Mortgage

To get a purchase plus improvements mortgage, you must ensure the property you’re buying is eligible. Similarly, depending on the property size, you must ensure it meets the minimum equity requirements.


Types Of Properties Eligible

  • Properties with 1-4 units, with one unit being occupied as the principal residence

  • Both new and old properties


Minimum Equity Requirements

  • 1 – 2 units: 5% on the first $500,000 of the home value, 10% on the rest of the home value

  • 3 – 4 units: 10%

  • Rental Properties: 20%


Considerations When Applying for a Purchase Plus Improvements (PPI) Mortgage

When seeking a purchase plus improvements mortgage, several factors warrant careful consideration:

  1. Renovation Time Limits: Lenders impose varying time frames for completing renovations. You can choose a lender with a suitable time limit, typically 90 to 365 days.

  2. Obtain Contractor Price Quotes: It’s essential to procure detailed price quotes from contractors. This enables the lender to determine the amount required for renovations accurately.

  3. No Additional Mortgage Funds After Closing: Ensure any additional funds needed for renovations are included in the initial mortgage amount. Post-closing, you cannot augment the mortgage beyond the quoted amount.

  4. Contractor Requirement: Some lenders mandate the involvement of a third-party contractor for renovations, prohibiting DIY renovations.

  5. Renovation Value Increase: Renovations must enhance the property’s value, as assessed by the mortgage appraiser. Failure to do so may result in shouldering some renovation costs personally.


Other Ways to Finance Home Renovations

Apart from a purchase plus improvements mortgage, there are alternative methods to finance home renovations:

  1. Cash: If you have sufficient cash reserves, paying for renovations outright can be an effective strategy. Whether covering the entire cost or a portion, using cash can minimize borrowing expenses.

  2. Credit Card: Renovations can also be financed using a credit card. However, this option is best only if you can settle the balance within the same billing cycle to avoid accumulating interest charges.

  3. Line of Credit: A line of credit offers immediate access to funds, with interest payable only on the amount utilized. Like a credit card, you can pay the minimum amount until you are ready to settle the balance. It’s essential to monitor interest rates, as they typically exceed those of a purchase plus improvements mortgage.


What About a HELOC?

Another option for financing renovations is a home equity line of credit (HELOC). This type of credit line is secured against the equity accumulated in your home, meaning you must already be a homeowner to qualify. HELOCs are advantageous for renovations because they function like revolving credit, akin to a credit card. You can access a predetermined sum and utilize as much as necessary for your renovation project. Furthermore, you’ll only incur interest charges on the amount withdrawn. HELOCs typically offer lower interest rates compared to alternatives such as credit cards or personal lines of credit, and these rates are often fixed.


Bottom Line

A purchase plus improvements mortgage offers a superb solution for financing property renovations. In addition to covering the property purchase akin to a traditional mortgage, it allocates extra funds for renovation expenses. The significant advantage lies in seamlessly integrating renovation costs into the mortgage and streamlining payments without needing separate loans. Despite specific requirements and limitations, this mortgage type provides flexibility and effectively addresses the challenges of covering renovation costs. If you want to enhance your property, consider exploring this convenient financing option. Contact us today to navigate the process, or search here for available properties and let us help you be where you wanna be!

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