One of the “hidden expenses” that new homebuyers encounter is the cost of making all of the updates to the property to make it just perfect. This could include a new fence for the backyard, an updated master bathroom, new wallpaper in the dining room, or travertine tile in the kitchen — or all of the above. These updates can add thousands — or tens of thousands — to the cost of the new home, and you don’t want to end up facing that new mortgage payments with those new upgrades to pay for separately.

This is where a “purchase plus improvements” mortgage can come in handy, and here’s an overview of two programs that offer this sort of financing package in Canada.

If you go with Genworth Canada, you can add your own tailored set of improvements to the purchase price of the home and qualify for a mortgage, so long as you can put at least 5 per cent down. If your loan is going to have an LTV (loan-to-value) ratio of over 80 per cent (meaning you didn’t put down at least 20 per cent), you will face high-ratio mortgage insurance charges over the life of the loan (which can add up). If you can keep the LTV ratio at or below 80 per cent, then you would only face the low-ratio mortgage insurance charges.

Genworth Canada works with the following types of transactions:

  • Purchases:
    • 1 and 2 units: up to 95% LTV (with purchase and improvements)
      • 5% down payment required if the property value is at or less than $500,000
      • 10% down payment required on any loan amount above $500,000 (maximum property value is $1,000,000)
    • 3 and 4 units: 90% LTV (purchase and improvements)
  • Single or multiple advance options (excluding the first purchase advance) are allowed, although improvements must either be greater than 20% of the purchase price or $40,000 for Genworth Canada to manage the draws.
  • The value for lending purposes comes from the lesser of the purchase price plus the improvement costs or the improved property value

Here are some general principles for Genworth Canada purchase plus properties mortgages:

  • Good for first and second mortgages
  • Maximum 4-unit property (1 unit must be owner-occupied)
  • New construction must be covered by a lender-approved New Home Warranty Program
  • Existing resale properties qualify
  • Estimated remaining marketable life of the property should be at least 25 years

For 3-4 unit properties, there must be appropriate municipal zoning, units must be totally self-contained, and they must be situated in a major urban centre that has a proven investor market.

Amortization options run up to 25 years, and the maximum interest rate term is also 25 years. The qualifying interest rate is the greater of the five-year benchmark rate or the contract rate. The borrower can choose fixed, standard variable, capped variable or an adjustable-rate mortgage.

Borrower qualification follows standard employment and income verification standards. For a loan above 80% LTV, at least one applicant has to have a minimum credit bureau score of 600. For a loan at or below 80% LTV, that minimum score is 680.

Down payment sources can come from any traditional sources, and government grants can apply if Genworth has pre-approved them. For 3-4 unit properties, an acceptable guarantor is required if the down payment comes as a gift. The borrower must have clean credit and a stable income and employment history. Net worth must be positive, and the borrower must have enough liquid assets to cover three months of payments.

CMHC offers a similar program, although there are some slight differences, as follows:

If you’re looking at a 3-4 unit property, your maximum LTV ratio is 90%.

If you purchase an energy-efficient home or make energy-saving renovations, your loan insurance premiums can be refunded.

Other than those provisions, the two programs essentially operate under the same parameters.

Do you have questions about how a purchase plus improvements mortgage can work for you? Get in touch with one of our experts at Amansad Financial today. We have helped many homeowners in Western Canada find the financing that helped them get into a home for the first time, and we have also helped many homeowners saving thousands by connecting them with a loan renewal or refinance that cut their rate significantly. Let us help you today!

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