When it comes to shopping for your perfect home, it can be hard to find the exact one ready to go! If you are looking into a home that requires improvements, there is a mortgage product known as Purchase Plus Improvements (PPI). This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.
Depending on whether you have a conventional or high-ratio mortgage, if it is insured or uninsurable, and which insurer you use, the Purchase Plus Improvements (PPI) product can allow you to borrow between 10% and 20% of the initial property value for renovations. Additional insight on how the qualifying structure works can be found in the table below:
Type of Purchase Plus Mortgages and Their Requirements
Uninsurable: $40,000 or 10% of the “initial” value of the property, whichever is less
CMHC Insurable: Can exceed $40,000 but not 10% of the “as improved” value of the property
Sagen/Canada Guaranty Insurable: Can be 20% of the “initial” value of the property but the improvement amount cannot exceed $40,000
The main difference between a regular mortgage and a purchase plus home improvements program is the need for quotes. As part of the verification process, your mortgage professional and the lender will need to see a quote for the work that is planned for the improvements. The quotes will provide us with the cost and plan details required to secure the final approval.
Working with your realtor, your mortgage professional will help guide you through the final approval process, which works as follows:
1) Find a home
2) Apply and get approved for a Purchase Plus Improvements mortgage
3) Get firm quotes on the improvements
4) Get an appraisal for the estimated as-is and as-improved value of the property.
This will be ordered by your lender or broker and quotes are typically reviewed by the appraiser.
Note: If you are putting less than 20% down payment on the purchase, often only a final inspection is required to confirm the work on the quotes has, in fact, been done.
5) Close the purchase
6) Depending on your down payment, the lender may provide up to:
80% of the as-improved value, less the cost of improvements (if on an uninsured mortgage)
95% of the as-improved value, less the cost of improvements (if on a default-insured mortgage)
7) Start the improvements
The initial advance of funds will be up to 95% of the approved value of the property minus the improvements. You will usually have to pay a portion of the improvements upfront via savings, credit
card, personal line of credit, parental funds, etc.
8) Notify the lender when the project is complete
At this point, an inspector/appraiser will confirm the work has been completed to the specifications agreed by the lender
Once the lender verifies the inspection report, the balance of funds is advanced.
If you have questions about how a Purchase Plus Improvements Mortgage could work for you or are considering taking this route for your next home, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional for expert advice!