Insured Purchase-Plus Programs
Fixer-Upper Financing
Any buyer who has purchased a home with less than 20% down is well-familiar with insurer Canada Mortgage and Housing Corporation (CMHC) and possibly their competitors as well (Sagen and Canada Guaranty). Insured mortgages account for approximately 25% of residential mortgages in Canada, totalling over $590 billion. For the majority of these purchases, the premium paid for, "insurance against default", feels inconsequential to the transaction. This is likely because many buyers were never made aware of one of the great features that this insurance offers.
Nearly every homebuyer has a list of "must-haves" that is inevitably trimmed once they begin to explore homes in their price range. Many potential deals are overlooked because of glaring problems or deficiencies requiring too much money to repair. This is where the insurers' "Purchase-Plus Improvements Programs" shine.
Quite simply, Purchase-Plus allows a borrower to include the cost of planned renovations in their upfront financing. Initially, a quote from a licensed contractor is submitted to the lender (in some cases, a buyer who intends on doing the work themselves can submit a worklist for approval). The lender may order an appraisal to determine that the planned cost of improvements will actually be reflected in the "as-improved" value . Once approved, the extra money is advanced to the lawyer at the time of closing and held in trust until the work is complete. At this point, an inspection confirms the work was done and the money is released to the borrower in order to pay off the incurred cost of improvements.
The best part about this program is that there are no additional fees or rate-premiums payable. It should be noted that the maximum amount of upgrades a borrower can include is 10% of the purchase price. Additionally, buyers are expected to carry the cost of the renovation until completion and the money is released from the lawyer, so there should be a short-term plan for achieving this. In many cases, other renovation grant programs can be applied for and incorporated.
The clear benefit of Purchase-Plus is that it allows every buyer to look at a much wider range of properties than they might have otherwise. Critically, houses with old roofs, dated bathrooms/kitchens, or older heating/cooling systems are all eligible for upgrades using mortgage financing instead of higher interest loans, lines-of-credit and credit cards. Every realtor and mortgage broker worth their salt should be aware of this program and be touting the benefits of purchase-plus financing to homebuyers looking for "deals" and not "deal-breakers".
