Creating your dream home

Tracy Head • Nov 04, 2023

Having troubles finding your dream home? Are the houses in your price range looking a little dated? If you find a home in your preferred neighbourhood that has the features you want, but needs a little updating, you may want to think about a Purchase Plus Improvements mortgage.


This option is designed for people who wish to purchase a home that may require some immediate upgrades:


  • updated electrical service
  • sewer hookup
  • a new roof
  • central air
  • a new furnace
  • new siding
  • eaves
  • soffits
  • fascia
  • doors
  • windows
  • a new kitchen
  • carpeting
  • or any other renovation that would increase the value of the home. 


It is important to know that this program covers permanent updates to the home, but cannot be used for moveable assets such as appliances. This can be a great solution if you find a house you love but realize that it will take some time to save for any renovations that you want to do.


Here’s how it works. Let’s assume that you have a five per cent down payment. Before the mortgage financing is finalized, you will collect written quotes for the repairs or improvements to be done.


When the application for financing is submitted, the request is made for 95 per cent of the purchase price plus 95 per cent of the cost to complete the improvements.


It is important to know that the lender will hold-back the improvement portion of the mortgage until the work has been completed and inspected, normally within 30-60 days of closing.


Once the work has been completed, the lender will advance the balance of the funds and the contractor can be paid.

This means that you will need to find a way to cover the cost of the renovations temporarily, or work with a contractor who is willing to be paid at the end of the project. Some clients use a credit line to cover the costs until the mortgage funds are released.


What does this mean? Let me give you an example, with the client putting five per cent down:


Purchase price:               $400,000 X 95% = $380,000


Cost of improvements:     $40,000 X 95% = $38,000


Total mortgage:               $440,000 X 95% = $418,000


An application is made for a mortgage in the amount of $418,000, which represents 95 per cent of the purchase price plus 95 per cent of the improvements.


On the closing date, the mortgage advanced to complete the purchase is $380,000 plus the original five per cent from the purchaser’s down payment ($20,000), which provides sufficient funds to complete the purchase of $400,000.

The seller is paid in full and the house is transferred in to the name of the purchaser.


After closing, the contractor completes the improvements (normally within 30-60 days after the closing) and the lender advances the hold-back of $38,000.The purchaser pays the additional five per cent of the cost of the improvements ($2,000) and the $40,000 owed to the contractor can be paid. 


Last summer, I worked with clients who bought a rural property. When the septic inspection was done, they were told that the system was on its last legs.They made the decision to use a Purchase Plus Improvements mortgage and replaced the system before they ran into difficulties.


I’ve also work with clients who used the program for cosmetic upgrades.They renovated their kitchen and bathrooms and changed out all of the flooring.They essentially moved in to a brand new home in the area they wanted to live.


The appraisal at the end of their project showed an increase in value of almost $75,000 based on $35,000 worth of improvements they had done.


With this program, purchasers are happy because they have done extensive improvements to their homes with a minimal cash outlay (the balance was financed with their mortgage).


In both cases they get to enjoy an updated home without scrimping and saving to come up with the funds for improvements.

Tracy Head

Mortgage Broker

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Read your mortgage paperwork.

By Tracy Head • 03 May, 2024
Sharing this situation as a reminder of the importance of reading the fine print. I have been working on a refinance at renewal for clients in northern BC. They had tried to sell their home but their acreage is unique so they did not have any offers. Their home sat on the market for over a year and their mortgage was coming up for renewal. In the meantime life happened. They were at limit on multiple credit cards and credit limits and were stretched pretty thin. Work slowed for a bit so his income was down and they had a new baby so she was on maternity leave. They did have a significant amount of equity in their home so the plan was made to consolidate their debt to improve cash flow for the short term. We got an approval with a great rate. So far, so good. The approval stipulated that most of their credit cards and lines of credit would be closed. I had submitted the application specifying which ones were to be left open and which were to be closed. When the mortgage commitment came from the lender I double-checked the list and all was in order. The lender pulled the clients’ credit reports about two weeks before closing and came back with a few changes because they were now over limit on two more cards. The clients went to the lawyers and learned that the new lender wanted an additional credit card closed. This particular card was one they used for rewards points so they were not willing to close that specific card. They discovered this change when they were signing with the lawyer two days prior to their scheduled closing date. I became aware of this the morning their mortgage should have finalized. Their lawyer had told them it wasn’t an issue and that she would sort it out, but the lender was unwilling to compromise on this. The clients called me and were very frustrated. After several calls back and forth with the lender and the client we were able to reconfigure their file a bit so that card stayed open and another credit line was closed. So where does reading your mortgage paperwork come in? Most people thing that once they sign their original documents from their mortgage person that their financing is set in stone. In point of fact, there is always fine print that includes something to say that any material change to the clients’ financial situation may cause their financing to be altered or cancelled. A wise broker I know shared a list of Ten Mortgage Commandments with me in my early days. It laid out ten things you should never do between the time your mortgage is approved and the time it finalizes. It included things like you should not change jobs, buy a new vehicle, co-sign for any loans, spend your down payment, go over limit on your credit cards, etc. At the time I remember thinking to myself that the list was so condescending that I would never share it with clients. After many years and interesting scenarios as a broker I go over this list with almost every client. If you think no one would do those things I can assure you I’ve seen it happen. In this situation we were able to sort things out and their mortgage funded the next day. If you run into something similar at the last minute, loop your mortgage person in. They will likely have no idea that things are happening behind the scenes and they are in the best position to help you navigate through it. Our goal is to help you have a smooth experience so we are here all the way through the process. Part of my practice is to connect with my clients’ legal representatives so that they have my contact information in case anything like this pops up last minute. Clients often don’t know that they can reach out for help, and the lawyers may not think to ask. Should something like this happen to you at closing time, take a deep breath and reach out to your mortgage person. It may be very simple to solve when the right people are helping.

Procrastination

By Tracy Head • 19 Apr, 2024
This morning I was up with the birds (literally) and really wanted to sleep a bit longer. I decided to listen to a podcast rather than get up. The podcast, ironically, was about procrastination.  Her general message was that procrastinating often makes us feel bad. There are things we want to accomplish or feel we should do but we choose the immediate gratification / dopamine hit of time in front of the TV or mindless scrolling (or more time in bed) rather than the satisfaction that comes with achieving our larger goals and dreams. She talked about procrastinating with both our actions and making decisions. The irony that I was listening to the podcast rather than getting up and tackling my day was not lost on me. There were a few comments the podcaster made that struck home. Making a decision, any decision, is better than no decision. Human nature (for many of us) is that when facing a tough decision we freeze. We over-analyze the “what-ifs” and potential outcomes. We worry about what others may think of our choices. We may not even know what our options are. While procrastinating opportunities are lost or we dig ourselves in a bit deeper. The last year in particular has been challenging with higher interest rates and a steadily increasing cost of living. Many families are struggling to cover their bills and put food on the table. I’ve written columns before about how if you have equity in your home it might be wise to consider a consolidation of your consumer debt to free up cash flow. Making lifestyle changes can be easier said than done. I believe that staying the course and getting your mortgage paid off as soon as possible is always the best plan, but there comes a time when you also need to look at how your finances are affecting your physical and mental health. When we get behind with our bills or are teetering on the edge of not being able to cover everything this month we are also concerned about what people might think. We are worried about a call from our creditors asking for a payment. We project a certain lifestyle and feel the pressure to maintain this even though we can’t actually afford it right now. We lose sleep at night thinking about the “what-ifs”. If you are in this situation and have equity in your home, I encourage you to take action to explore your options sooner rather than later. I have worked with clients who have never missed a payment ever but their credit scores were in the 500 range (not good) because they are over-extended and maxed out on multiple loans, credit cards and / or credit lines. Had they reached out sooner we would have had more options to help them with a fresh start. This doesn’t mean we can’t find options, but there are certainly more available when credit scores are higher. As a rule I don’t get into the discussion of why you would work with a mortgage broker versus a bank but this is one of those times. I do place many of my clients with chartered banks when that is the right fit. When you approach your bank your situation might not be a fit for their lending guidelines. They may tell you they are not able to help you and that you will have to sell your home or look at a consumer proposal or bankruptcy. Selling your home may be the right answer, but before you jump to that place take a look at other options. Pick up the phone. Don’t procrastinate. If you are working with a mortgage broker they are able to explore multiple lenders and programs to help you try to find a solution to put you on the right track sooner rather than later.
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