Is 2017 the year that you look for a new home? You may find that your wish list verses what the market has to offer don’t exactly add up. Another issue you may run into is the current inflated house pricing that is (slowly) being corrected here in the lower mainland.
With this in mind, an option for many buyers is to look at purchasing a Fixer-Upper. If you do choose to go this route, we have a mortgage for you!
There is a mortgage product called Purchase Plus Improvements (PPI).
With a PPI a lender is able to provide additional financing to improve the subject property. The additional funds can go towards making simple upgrades such as new paint, floors, windows, hot water tank replacement, kitchen updates etc.
The PPI mortgage program is not without regulations though. The following are parameters that must be observed
*Adapted from Dominion Lending Centres: Home Financing Solutions-Purchase Plus Plan*
- Apply for up to but not limited to a maximum of 10% of the as-improved market value
- Utilize as little as 5% towards the down payment
- At the time the application is submitted for approval the lender requires a construction quote to verify the work that is planned for the subject property
- Renovation to be completed within but not limited to 120 days after taking possession of the property
- A third party (appraiser) must verify completion
- One advance of the funds once the project is complete
- Once the renovation is complete the lawyer would release the funds
The main benefit to those that opt to go with this type of mortgage is the elimination of having to apply for a mortgage PLUS a second type of financing to fund renovations.
Consider the following scenario of a PPI:
Listed or Purchase Price: $450,000
Value of the Renovation: $45,000
As-Improved Value: $495,000 (new Purchase Price)
Maximum Borrow: $49,500 (10%)
Purchase Price: $495,000
Down Payment: $24,750 (5%)
Mortgage Amount: $470,250
Mortgage Insurance: $16,929
Total Loan: $487,179
Monthly Mortgage Payment: $2,146.17
This is versus another form of financing for the renovation, which would be a line of credit. An Interest-only payment: $49,500 @7.50% is another $309.38 (which saves you $114.28 overall.)
This type of mortgage offers first time home buyers an opportunity to buy a home that needs a little TLC and turn it into a home they are proud to call their own. Give us a call today and we would be happy to delve into the details of the PPI mortgage!