GOVERNMENT PROGRAMS

CMHC - Canada Mortgage and Housing Corporation

Canada Mortgage and Housing Corporation (CMHC) insured mortgage loans are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or other improvements that the purchaser may wish to make to the property. This option eliminates the need to obtain secondary financing after the purchase to pay for improvements. The homebuyer obtains a single first mortgage, makes a single mortgage payment, and benefits from first mortgage interest rates.

Details
The insured loan will be based on the lower of:
The purchase price plus the actual cost of improvements, or,
The "as improved" market value. Prior to approval, CMHC will determine the market value of the property after renovations/improvements. The lending value will not exceed the market value of the property after renovations/improvements.

Applicants must have the following:
A minimum of 5% down payment of total cost (purchase price plus renovations/improvements)
Cost estimates for renovations/improvements
Qualifications to obtain a CMHC-insured loan through an approved lender.

Sample Situations at Completion

Situation A
Cost of improvements is the same as the increase in the house value.
Purchase Price $100,000.00
Cost of Improvements $20,000.00
Total house cost $120,000.00
As improved appraised value $120,000.00
Minimum down payment $6,000.00 (5% of 120,000.00)
Mortgage Loan amount $114,000.00
First advance on purchase $94,000.00 ($114,000.00 minus $20,000.00)
Second advance after improvements $20,000.00 ($114,000.00 minus $94,000.00)

Situation B
Cost of improvements is more than the increase in the house value.
Purchase Price $100,000.00
Cost of Improvements $20,000.00
Total house cost $120,000.00
As improved appraised value $115,000.00
Minimum down payment $5750.00 (5% of 115,000.00)
From borrower’s own resources $5,000.00
Difference between “total house cost” and “as improved
appraised value” Additional funds to be provided by the
borrower may be borrowed outside of the insurance loan amount.
Mortgage Loan amount $109,250.00
First advance on purchase $89,250.00 ($109,250.00 minus $20,000.00)
Second advance after improvements $20,000.00 ($109,250.00 minus $89,250.00)

In these examples, the Mortgage Loan Insurance premium is not added to the mortgage loan amount. In fact the premium may be included in the insured amount- choice of the borrower. Most Purchase Plus mortgages are administered through the retail lenders or a through lawyer with a financial corporation. These mortgages are usually subject to a 10% hold back for 45 days after completion of work. This holdback is in case there is a construction lien registered after for non payment.

FOR EXAMPLE:

If you purchased a home for $120,000 and wanted to do $30,000 worth of renovations, GE/CMHC
will insure a mortgage based on 95% of the "as improved" value. In other words, with a down payment of $7,500 (5%) GE/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, GE/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 was done. The insured loan will be
based on the lower of the purchase price plus the actual cost of improvements or the "as improved" market value.

HOW DOES IT WORK?

When you decided to make an offer on a house, make the offer conditional that you will arrange qualified contractors to put
together a description and a cost estimate for the proposed repairs or renovations.

Forward the "Contractor's Estimate" along with the "Agreement of Purchase and Sale" for submission to the lender for GE/CMHC’s approval.

The following information needs to be prepared by the contractor to be submitted along with your application to the lender.

Renovations (i.e. Kitchen renovation/ Bathroom renovation)

1. Description of the work
2. Types of materials being installed with applicable quantities (i.e. 250 sq. ft. ceramic flooring)
3. Total cost of all work (include applicable taxes)

Additions (i.e. Rear family room addition, second storey addition)
1. Description of work
2. Copy of drawings
3. Cost breakdown of all proposed work in a similar format to the following as applicable:
- Excavation and foundations - Exterior finish
- Framing - Interior wall and ceiling finish
- Windows and exterior doors - Finish carpentry (i.e. Trim, doors, and kitchen cabinets)
- Electrical
- Interior painting
- Plumbing
- Finish flooring
- Heating
- Site work (i.e. Landscaping)

Important Reminders
1. Make the offer conditional for a longer than normal conditional period, 10 business days
2. Get estimates immediately after accepted offer
3. Full application cannot be submitted until estimates are in
4. All work has to be completed and receipts submitted together to release funds
5. A walk-through appraisal maybe required at the borrower’s expense

For more information call CMHC at 416-221-2642 or click here to visit their website.