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What is a Renovation Mortgage?

There are many homes offered for sale that have great potential but are in need of repairs or renovations. These homes are generally sold at prices that represent excellent value. While the value of these homes is attractive, financing the necessary work has often been difficult. Wouldn't it be nice if it were possible to buy that "fixer-upper" at a great price, immediately have it renovated into your dream home, and do it all with one manageable mortgage, and a minimum down payment?

Well, it's possible with a CMHC "Purchase Plus Improvements" mortgage. Now you can purchase a home, renovate it the way you like and pay for it all in one mortgage payment at first mortgage rates. All of this can be done by putting down as little as 5% of the "as improved" value.

For example, if you purchased 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 down payment of $7,500 (5%) CMHC will insure a mortgage of $142,500. The key for this working is that the cost of the renovations has to be reflected in the "as improved" value of the house. In this 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 were done.

The insured loan will be based on the lower of either the purchase price plus the actual cost of improvements or the "as improved" market value. ( see below for example scenarios )
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. To determine which ceiling limit is applicable in your area, send me an e-mail.

How Does It Work?

When you have decided to make an offer on a house, make that offer conditional on getting a CMHC "Purchase Plus Improvements" Mortgage. Since the offer will be conditional on arranging this type of financing you are not at risk in the event that CMHC feels that the cost of the proposed renovations are not fully reflected in the "as improved" value. Next, 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 me. I will submit your application to CMHC on your behalf and get back to you very quickly with the decision. For more information on this mortgage and others, please contact us.

Renovation Mortgage Examples

Situation A:

The cost of the renovations are fully reflected in the increased house value.

Purchase Price $ 120,000
Cost of renovations $ 30,000
Total House Cost $ 150,000
(purchase price + cost of renovations)
"As Improved" Appraised value $ 150,000
Maximum Mortgage Loan Amount* $ 142,500
(95%** of the "as improved" value of 150,000)
Minimum amount of borrower funds required** $ 7,500
( The difference between the total house cost of $150,000 and the maximum loan amount of $142,500. In this example the cost of renovations are fully reflected in the "as improved" value therefore the minimum down payment represents 5% of the "as improved" value of $150,000.)
First Advance on purchase $ 112,500
(The purchase price of $120,000 less the minimum down payment of $7,500)
Second advance after improvements $ 30,000
(The first and second advances together total the mortgage loan amount of $142,500)

Situation B:

The Cost of the renovations are greater than the increase in value.

Purchase Price $ 120,000
Cost of renovations $ 30,000
Total House Cost $ 150,000
(purchase price + cost of renovations)
"As Improved" Appraised value $ 145,000
Maximum Mortgage Loan Amount* $ 137,500
(95%** of the "as improved" value of 145,000)
Minimum amount of borrower funds required** $ 12,500
(The difference between the total house cost of $150,000 and the maximum loan amount of $137,500. In this example the "as improved" value is $5,000 less than "the total house cost". Therefore, the minimum required is $5,000 more than it is for "Situation A")
First Advance on purchase $ 112,500
(The purchase price of $120,000 less the minimum down payment of $7,500)
Additional funds required to complete renovations $ 5,250
(This amount plus the minimum down payment of $7,250 equal the "Total minimum amount of borrower funds required of $12,500)
Second advance after improvements $ 30,000
(The first and second advances together total the mortgage loan amount of $137,750)

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Licence # 10464 | 1 877 677 7778