What is a Renovation Mortgage? You might be browsing through the Calgary MLS and think, wow that home is perfect, "if only _____ was different". Or perhaps you are looking at a "handyman special" or a fixer-upper. There are always homes for sale on the Calgary real estate market that fall into either category. The homes that need a little work are usually priced more competitevely and offer excellent value. The problem for some buyers is being able to afford the home, along with the renovations. CHMC (Canada Housing Mortgage Corp) has what is called a "Purchase Plus Improvements" Mortgage, which lets you buy your dream home, and be able to fix it up as well. With a Purchase Plus Improvements Mortgage, you lump your renovation and home purchase price together and pay one single mortgage payment, with as little as 5% down - of the "as improved" value. For example, if you were to purchase a home for $120,000 and wanted to do $30,000 worth of renovations, CMHC will insure a mortgage based on 95% of the "as improved" value. In other words, with a 5% down payment ($7,500) CMHC will insure a mortgage of $142,500. The key for this to work is that the renovation cost has to be reflected in the "as improved" value of the house. In this given example, CMHC would have to agree that the house would have a value of at least $150,000 after the $30,000 worth of proposed renovations had been completed. In other words - your renovations have to increase your homes value by at least as much as they cost you. The insured loan will be based on either the purchase price plus the actual cost of improvements, or the "as improved" market value - whichever was lower. Remember, however, that in the case of 90-95% financing is only available if the lending value does not exceed the price ceiling for your area. Price ceiling are either $175,000 or $300,000.
How Does It Work? When you have decided to write an offer on a Calgary home for sale, be sure to make that offer conditional to being approved for a CMHC "Purchase Plus Improvements" Mortgage. Since the offer will be conditional to the arrangement of this financing, you are not on the hook if CMHC feels that the cost of the proposed renovations are not fully reflected in the "as improved" value. Your second step is to have a qualified contractor put together a description and a cost estimate for the proposed repairs or renovations. Bring your "contractor's Estimate" along with the "offer to Purchase" to your mortgage specialist. They can submit your application to CMHC on your behalf. The information in this article was researched from: www.canadian-mortgages.com |