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Purchase + Improvements

PROCESS

1️⃣  Prior to subject removal, obtain quotes from a contractor/third party outlining the work to be completed for the improvements.

2️⃣  Work is to be completed after the purchase is finalized and funded via personal cash or credit.

3️⃣  Improvement funds are held in trust by the solicitor until they are confirmed complete.

4️⃣  Once the work is finished, the lender will require confirmation that the outlined work was completed as originally outlined. Depending on the lender and renovations, this may include paid invoices/receipts or an inspection (and permits if appl.).

5️⃣  Funds are released by the solicitor and in some cases can be released directly to the contractor.


HOW MUCH CAN BE ACCESSED?


Some lenders allow a maximum of $40,000 or 20% of the as-is value, released as a single advance. Others allow up to $100,000, spread across up to 3 draws.


For example, if the total cost of renovations was quoted at $40,000 to re-do the kitchen and $10,000 to update a bathroom, this could be accessed over 2 draws (i.e. first the kitchen, then the bathroom).


In most cases costs will be incurred upfront and only

reimbursed after the work is complete. The improvements do also need to make sense for the area and home.





WHAT RENOVATIONS CAN BE DONE?


This program is most commonly used for cosmetic renovations (kitchen/bathroom upgrades, etc). Some lenders do allow other more unique applications, like:


  • Putting in a basement suite
  • note: most lenders will not allow hypothetical rental income from the suite to be used to help qualify
  • Structural repairs/upgrades or remediation
  • i.e. if the rood needs to be replaced, or asbestos/vermiculite is found and needs remediation
  • Mechanical systems
  • i.e. heating/cooling

OTHER CONSIDERATIONS


  • Allow extra time during the financing subject removal to gather quotes for the work that is being planned. The lender will require these quotes upfront as a condition of financing.


  • Any permit applications or additional costs are to be applied for and covered by the client.


  • The work quoted, is the work that must be completed in order to receive reimbursement (i.e. do not gather quotes for a bathroom renovation and instead replace the flooring in the living room). If changes are necessary, notify your mortgage broker (that's us!) so the lender can approve the changes ahead of time (rather than after the work is already completed.



  • Any changes to the building envelope (windows, roof, etc) or heating/cooling may be eligible for rebates through CMHC's Eco Rebate Program


FAQ's


Can I do the work myself?

Some lenders allow this, yea, however you would only be reimbursed for your materials costs (not your labour/time).


How long do I have to complete the work?

This varies from lender-to-lender, but typically ranges from 4 - 12 months. An extension can be possible in certain circumstances (i.e. supply chain issues).


What if I decide not to complete the work?

In that case, the funds held in trust would be applied to your mortgage principal rather than being released to you.


What if I have to make changes to the work I had planned?

Reasonable changes (i.e. change of contractor) can often be accommodated, but it's far easier to have changes approved by the lender upfront rather than after the work is completed, so be sure to keep us updated along the way!


EXAMPLE


Let's say you are looking at a home with a $400,000 purchase price, looking to put 5% down. You'd like to access $20,000 to update the kitchen in one draw, and $10,000 to update the bathrooms in a second draw.


$400,000 Purchase Price

+ $30,000 Improvements

$430,000 Total As-Improved Value

- $21,500 Down Payment (5% of as-improved value)

+ $16,340 CMHC Mortgage Insurance (because down payment is less than 20%)

$424,840 Total End Mortgage


Note that the required minimum down payment is calculated based on the as-improved value, not the original purchase price (5% of $430,000, not $400,000).


95% of the quoted improvement costs, in this case $28,500, would be held in trust at the solicitor's office un til the work is completed.


You would put in the $20,000 (of your own funds) to complete your kitchen renovation upfront. When the kitchen is complete (confirmed by an inspection and/or paid invoices depending on your lender requirements), $19,000 would be released to you by the solicitor (95% of the $20,000) as your first draw.


You would then complete your bathroom renovation, and once confirmed, the remaining $9,500 would be released.

*OAC, E&O

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