Purchase plus improvements

Purchase plus improvements transactions allow the purchasers to finance the costs of immediate renovations or improvements through the mortgage loan by using the “Estimated Market Value”; value after these renovations or improvements have been done.

Here's how the program works at one lender which is pretty much standard across the board.

Conventional Loans – In addition to the standard purchase requirements, the
following criteria apply:

• Appraisal will be required. The appraisal report should indicate both values e.g. “Current Market Value” and “Estimated Market Value”.
• Lending value must be calculated using the lesser of the “Estimated Market Value” or the “Total Cost to Improve Value”.
• A quote outlining the work to be done, the cost of improvements and expected completion date must be obtained and reviewed prior to completion.
• Work must normally be completed within 90 days after completion
• An amount equivalent to the cost of improvements must be held back. The hold back should be released once the work has been completed, inspection report provided and any lien period has passed.
• No maximum threshold for the cost to complete renovations / improvements.
• Progress draws are allowed when renovations / improvements are major and progress draws requirements apply.

CMHC Insured Loans – CMHC will insure mortgages for purchases plus improvements.

• The loan to value is the lesser of the “purchase price plus direct costs associated with the improvements” or the “Estimated Market Value”.
• A quote outlining the work to be done, the cost of improvements and expected completion date must be obtained and reviewed.
• Appraisal is not required. Originator and underwriter are expected to ensure reasonableness of the “Estimated Market Value”.
• Purchase advance based on the property’s “Current Market Value” and additional advances to cover improvements based on the “Estimated Market Value”.
• Work must normally be completed within 90 days
• If the increase does not require Progress Advances, the hold back may be released upon confirmation that the work has been completed. The following documentation should be obtained prior to releasing the funds:
• letter from the applicant confirming renovations / improvements have been completed
• receipts showing invoices have been paid.
An inspection report confirming the renovations / improvements have been done may also be acceptable

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Even though the program is out there it is not widely used. Most people don't like the short time lines used and most people are capable or know someone very capable of doing the work themselves.