What is a Purchase Plus Improvements Mortgage?
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While new real estate listings come available daily, finding the right property that meets both your functional needs and your budget is not always straightforward. You may find a house with the perfect layout in your ideal neighbourhood, but the interior needs some major upgrades before it meets your needs. Or maybe you can get away with just renovating the kitchen and bathrooms. This is where a Purchase Plus Improvements (PPI) mortgage comes to the rescue. You can buy a home, renovate it to your liking and pay for it all in one mortgage payment.
- A Purchase Plus Improvements program is a flexible mortgage product that enables you to not only buy a home that’s more affordable due to required upgrading, but also allows you to customize your renovations
- Purchase Plus Improvements mortgages are offered by all three Canadian mortgage default insurers – CMHC, Canada Guaranty & Sagen
- The improvements must be permanent in nature, including items such as paint, cupboards, flooring, roofing, furnace…
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Who offers Purchase Plus Improvements mortgages?
Often referred to as the ‘CMHC Improvements Mortgage’ or the ‘CMHC Renovation Mortgage’, all three mortgage default insurers in Canada offer this home renovation mortgage, not just CMHC. Private insurers Canada Guaranty and Sagen (formerly Genworth Financial) also offer mortgage default insurance and PPI programs to borrowers across Canada.
How does a Purchase Plus Improvements program work?
A PPI is a flexible product that enables you to not only buy a home that’s more affordable due to required upgrading, but also allows you to customize your renovations.
There is a stipulation, however, that requires improvements to be permanent in nature, including items such as paint, cupboards, flooring, roofing, furnace, etc. As such, appliances and other non-permanent fixtures are not covered within a PPI mortgage.
There are two different choices available for this product depending on how much money you’re putting towards your down payment:
- For purchases up to $500,000, you can make a down payment for as little as 5%. Anything above that threshold, including the improvement amounts, requires a 10% down payment. In this case, most lenders will max out at 20% of the purchase price or $40,000 for improvements, whichever is lower.
Example: When purchasing a $500,000 property with $40,000 in additional improvements (making the purchase price $540,000 based on the improved value), you’ll need a $25,000 down payment for the first $500,000 plus $4,000 for the additional $40,000 = $29,000 total down payment amount required.
- If you’re making at least a 20% down payment, improvements can total more than $40,000 – up to $60,000 or potentially more on exception.
Lenders typically require a quote from a contractor for the noted improvements. They also want the actual improvements to stay true to what’s contained in the quote.
Tip: Depending on the lender, you can often complete some or all of the improvements yourself. But not all lenders allow for DIY improvement, so be sure to ask about this before you sign your mortgage documents.
The selected lender will advance what’s needed for the initial purchase at funding. A final advance of funds will be released within 120 to 150 days once all improvements are 100% complete as reimbursement for improvement costs.
The lender will send an appraiser to confirm the quoted improvements are complete unless the improvements total $10,000 or lower, in which case they may ask for paid invoices. This is dependent on the lender.
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How to qualify for the Purchase Plus Improvements program
There are minimum equity requirements in order to qualify for a PPI. For homeowner loans, the minimum equity requirement for 1-2 units is 5% of the first $500,000 of lending value and 10% of the remainder of the lending value. For 3-4 units, the minimum equity requirement is 10%. And for small rental loans, the minimum equity requirement is 20%.
Important: For both homeowner and small rental loans, the maximum purchase price or as-improved property value must be below $1,000,000.
Of course, you must qualify for mortgage default insurance in order to obtain a PPI mortgage. See: Mortgage Default Insurance
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