The CMHC Improvements Program — Making Toronto Real Estate More Affordable for Home Buyers
It wasn’t long ago when a home that “may need a little TLC” was enough to make a homebuyer turn the other way. Now, in Toronto’s tight market, where affordability is a growing concern for home buyers, even homes in dire need of repair and renovation are stirring up bidding wars.
CMHC’s Improvements Program, (formerly known as the Purchase Plus Improvements Program) is a little-known option that qualified buyers can take advantage to improve their odds of affording a fixer-upper. How does it work? The program allows you to tack the cost of renovations to the overall purchase of the home and include it in their mortgage loan amount. Qualified buyers have that ability to borrow up to 10 per cent of the estimated value of the home after renovations.
To give you a better idea of how the program works, let’s say you’re interested in purchasing a home listed at $650,000. The home has great bones, however, would require renovations to the kitchen and washrooms. It’s estimated that this home’s value, once improved would have a market value of $700,000. As a result of the estimated increase, you can borrow up to 10 per cent, or $70,000 of the new value. This is a great program for first-time buyers who would otherwise be unable to afford renovations because the majority of their money was used toward a down payment.
To qualify for the program, borrowers must provide a quote from a contractor and submit it to the CMHC and their mortgage lender before closing on the house. In order for the CMHC and lender to approve the amount, your Agreement to Purchase must include the condition that states you would like a contractor to perform an inspection of the home. Once approved, the amount will be added to the mortgage loan. Upon closing, the improvement amount is forwarded to your lawyer who is authorized to release the funds when the proposed renovations are complete. Because buyers do not have immediate access to the funds, it is recommended they open an unsecured line of credit in the interim.
There are a few provisos that buyers need to keep in mind—things that are not permanently affixed to the structure of the home, such as appliances are not covered under the program. Additionally, the CMHC would not approve a renovation that would convert a section of the home into a separate apartment.
For new homebuyers, the Improvements Program is a fantastic opportunity to build up thousands in equity instead of purchasing a more costly renovated home—and transform that fixer-upper into a dream home.