My question was this:
After a 3 week search we’ve found the perfect house for a young family. It is close to schools, close to work, has a great yard for the kids – perfect, except that it is outdated and needs some renovations.  They only have the minimum 5% down payment. They want to renovate immediately after they get they keys but have no money for it. Is there some way to do this?

This was a reply from Pat Pelletier, Mortgage Specialist.
Yes. Absolutely. Since you are putting down 5% the mortgage has to be default insured by either CMHC or Genworth. They both have a program called “purchase plus improvements”.  You have to do this with your Broker or your bank, but this will give you a bit of an education on the program.

Here is what happens. Say you buy the home for $300,000 (you have 5% down or $15,000). After you look at the home you estimate that you need a new kitchen, new floors and that this will cost you about $20,000. Note that before final approval, you will have to get formal quotes. Say you go to a large Home Renovation Centre and get a quote for both: total $20,000. $15,000 for kitchen and $5,000 for flooring.

You give these quotes to your Broker. So, now, the total is $300,000 plus the $20,000 or $320,000.00. This is sent to the bank & the insurer. If approved, then they will approve a loan of $304,000. ($320,000 less 5% - 16,000). Note that your down payment is now increased by $1,000.

Then you move in. Do the work and once the work is 100% done, the bank will send an inspector (at your cost) and if 100% done, will release the funds. So, you do the work first, before getting paid for it. You may be able to arrange a line of credit for this, or your contractor will accept getting paid at the end.

Here’s the kicker: the work needs to be done as on the quote, but does not necessarily be done by the person who gave you the quote. Example: say part of your quote was from a painter for $4,000 for paint & painting. Say you go to the Reno Centre and buy a few gallons of paint, and do it yourselves. You will be advanced the full $4,000 if the work is done as on the quote.

You can’t include chattels (fridge, stove, etc.) in these quotes. Those are called chattels and are not considered attached to the home, or structural.

For more information, please call or e-mail me.

Tibor Bogdan or Pat Pelletier

Pat: 604-850-5110
Tibor: 604-855-0800