Edmonton Real Estate Blog

Emotions are a big part of the homebuying process. People have to feel good about the house they are considering purchasing.

Both physically and financially, there has to be a comfort level or the cheque won’t be signed.

The location might be perfect and the price may fit, but the house might need some work– and the cost of, say, new kitchen cabinets, flooring and windows might just be enough to break the deal.

Laura Parsons, Calgary-area manager of national business development for the Bank of Montreal, has heard this scenario countless times from those on the front lines of the real estate industry.

“I talked with one realtor who showed clients something like a hundred homes and there was always something wrong,” she says.

“They couldn’t put a deal together.”

Banks want to help realtors sell homes to get the financing business, so Parsons had to find an answer to the you-scratch-my-back, I’ll-scratch-yours problem.

In the back of her mind, there was something she recalled that might solve the problem–some financing vehicle that would help both realtors and potential homebuyers.

After much mulling, it came to her.

More than five years ago, Canada Mortgage and Housing Corp. introduced a Purchase Plus Improvement Program (PPIP) that would allow homebuyers to finance the purchase of the home plus the cost of immediate renovations–all in the original mortgage.

Because there was no big flag-waving, horn-blowing announcement of the program, it’s been under-utilized to some extent.

Parsons decided it was time to brush the dust off the PPIP–which is available through both CMHC and Genworth Financial Canada –and put it to better use.

“We wrapped our arms around how to deal with this issue and came up with mortgage staging–our way of helping people fix up their homes without spending much extra money on a mortgage payment,” she says.

In a nutshell, here’s how the PPIP works,

A home is purchased for, say, $400,000. Based on a five-per-cent down payment and a 35-year mortgage plus things like the mortgage insurance, PIT (principal, interest and taxes). and property taxes, the monthly payment would be $1,524.

But $50,000 worth of renovations are needed to bring the home up to snuff at move-in. Add this amount to the original mortgage and the monthly cost goes up just $169–less expensive than taking out a separate loan.

When the decision has been made to make an offer on a home that needs upgrading, Parsons says the offer is conditional for a longer-than-normal period to arrange for a contractor to look at the place and give an estimate for the work.

If everything is satisfactory, the timing of the work is then between the buyer and contractor.

Bart Dutchak is one of the early success stories for the program.

The 32-year-old bought a unit in a 25-year-old condo building in April, knowing ing full well he was going to be spending money to fix it up on his own–things like laminate for new countertops, as well as new flooring, crown mouldings and baseboards.

“I worked for two solid months after work to get it done,” he says.

The bill was $10,000– which, when added to his original mortgage, didn’t make all that much a difference to the monthly outlay.

He shopped around, but he says he couldn’t find a lender who would let him add the renovations onto his original mortgage.

“Then the Bank of Montreal treal said, ‘Yes,’ and I was pretty excited to be able to combine everything,” says Dutchak, who is a senior draftsman and detailer at Canam Steel. “It just made it all so much simpler.”

Elena Salikhov, Calgary based based area manager for business development for CMHC, says the program was established to help people wanting to make improvements that would increase the value of the property.

The key to the program is that the cost of the renovations must be reflected in the expected future value of the home.

In the example of the $400,000 home with $50,000 worth of renovations, CMHC or Genworth must agree the home would have a value of at least $450,000 after renovations are done.

So, with CMHC and Genworth worth firmly on side, Parsons set out to find other partners who would help increase the profile of the mortgage program.

Because she is involved with the Canadian Home Builders’ Association-Calgary Region, Parsons explained the program pro-to its Renomark committee, which represents many of the city’s renovation contractors.

Unlike Dutchak, some people don’t want the challenges of doing the renovation themselves. They’d rather hire the work out.

Paul Klassen, president of Pinnacle Group Renovations by Design Ltd., was in the Renomark audience for Parsons’ address and says the timing was uncanny.

As part of the company’s five-year strategic plan, Klassen developed a 3-D application to show people how a renovation would look when complete.

The fact a program was available to help clients pay for it was an added bonus.

“I ran out to speak to her, explaining that this was a perfect marriage for us and would be another tool in our business arsenal,” he says.

Since that meeting, he has talked about PPIP with a couple of his clients.

“What we thought was a wall (to a renovation decision) has become a door,” says Klassen.

Parsons then went in search of a supply partner. Because of prior business dealings with Rona, she received the support of Mel Anderson, manager of the retail chain’s Crowfoot location.

“We thought it would tie in well with services we were already offering at the store,” says Anderson.

Rona has an installation department that includes designers and estimators. They also have programs and facilities to assist customers with all aspects of a renovation.

“We are an option to hiring a contractor,” says Anderson. “We can walk customers through the design and buying processes right here in the store, or we can go to their residence and give them an estimate.”

With program partners on side, Parsons says consumers are able to take advantage of another federal government program that might save them money and time.

“Its been around for a long time, but few have taken advantage of it because they don’t realize the little impact it will have on them financially,” she says.

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In Short

If you intend to buy a home that needs some immediate upgrades, the Purchase Plus Improvement Program may be the answer. A qualified mortgage consultant can guide you through the process:

– Step 1: Mortgage pre-approval– Arranging a pre-approved mortgage not only protects you if interest rates increase, it also gives you a

clear price range for your new home. At least a five-per-cent down payment is required for a PPIP mortgage.

– Step 2: Obtain cost estimates for upgrades– Once you have found a home, you need to get written quotes from licensed contractors on the planned renovations.

– Step 3: Mortgage application–For example, with five-per-cent down, your mortgage consultant would apply to a lender for whatever’s lowest: 95 per cent of the purchase price plus 95 per cent of the cost to finish the renovations, or 95 per cent of the “as improved” market value, determined by the institution which insures the mortgage after the renovations.

– Step 4: Finalize purchase–Your realtor and mortgage consultant will walk you through this part of the process. The funds for renovations will be sent to your lawyer in trust when the mortgage closes.

– Step 5: Complete upgrades–The lender will hold back funds for the renovations until the work has been completed and inspected, at which time the contractor can be paid.

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The Buyer

Bart Dutchak.

AGE: 32.

BACKGROUND: A senior draftsman and detailer for Canam

Steel, Dutchak bought an apartment condo in a 25-year-old building that he knew needed some renovations, including flooring, baseboards, crown mouldings and countertops. Using an estimate of the renovations costing $10,000, Dutchak shopped around for a lender who would add this cost to his original mortgage through the Purchase Plus Improvements Program offered by Canada Mortgage and Housing Corp. and Genworth Financial Canada. He got in touch with a Bank of Montreal mortgage official and received approval. He did the renovations himself over the course of two months working in the evenings.