Purchase + Improvements Con't

Previously I explained this process but I wanted to re-emphasize some of the problems clients are encountering.

First of all, let’s say you find a home that suits most of your needs, except for an issue or two, such as a poor roof or furnace. You can ask the lender for money to finance this improvement. Do remember the improvement generally can’t exceed the value by more than 10% if CMHC approved, or 20% if GE Capital approved.

So what are my cautions?

1) If you notice some failing, you need to get a tradesperson in to quote the damage. This is very difficult if the financing period is too short. Be sure to communicate to your real estate agent that you want to investigate doing a purchase plus improvement so you may need extra time.

2) If the improvement exceeds 10%, then you need to know if your lender uses GE Capital. Not all lenders do. This is a great reason to see a broker agent who knows where to send a deal.

3) An improvement can add debt to you and you may not qualify. Know where you stand.

Hedge your bets. Use a knowledgeable broker agent who can guide you through this fantastic option.

Purchase + Improvements

Did you know you can buy a home that has problems and get these problems fixed within 3 months of moving in? 

This product is called a Purchase PLUS Improvements.  There are a few rules, but basically, if you like a house but it has, for example, a poor furnace and shabby roof, you can purchase this home and get the roof and the furnace replaced.  This, of course, increases the value of the home. 

So—how can this be done?

If you see a place and indentify a few problem areas like those stated above, you should initially tell your real estate agent that you will need to get a new furnace and roofing specialist in the house soon after an agreement of purchase and sale has been signed.  Next, I would require the agreement of purchase and sale, the MLS listing, and two quotes (one for the furnace, one for the roof).  The following will show how your mortgage would then be determined: 

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Sale Price                             $170 000.00

Improvement                         $12 000.00            (Roof - $5000, Furnace-  $7000)

                                             $184 000.00

CMHC                                     $  5 328.00

Total Mortgage          $189 328.00

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The Rules: 

1. The improvement can only equal a 10% increase in property value if insured by CMHC and a 20% increase if insured by G.E. Capital.  This part will be handled by the broker agent.

(In our example above, the maximum improvement is $17 000.00 to $34 000.00.)

2. The work must be completed within 3 months of the closing date.  You need to discuss with the sub contractor to assure the 3 month deadline will be met.

3.  No one gets paid until all of the work is complete.

4. Most improvements need an appraiser to confirm work is actually completed.  This typically costs about $100.00. 

My Recommendations: 

1. Co-ordinate work (roof and furnace) so all workers finish around the same time.  Also, ensure sub contractor understands when he/she gets paid.

2. Take before and after pictures.

Overall, this product can be very helpful to buyers.  If you find the perfect place, and then find there is a huge “BUT, this needs work...” there is still an easy way around it. Please call or e-mail if you would like more details about the Purchase Plus Improvements product, or any other mortgage product. 

I offer a variety of options for every situation!