CMHC Home Improvement Loan

[Steven Gingerich]

I’m going through a purchase right now, $152,000 for an up down duplex. I’m using a strategy I came across in one of Russ Whitney’s books. A home improvement loan.

The IDEA is to buy a house, say $100,000.

-$20,000 down payment

-Apply for a home improvement loan that will be added to your final mortgage once repairs are completed

-Get quotes on work to be done from contractors (high end quotes) and supply them to your mortgage broker.

-Then say the quotes land around $40,000, potentially adding $40-50,000 in after repair value.

-The idea is to then do the majority of the work yourself, say cutting Reno costs to $20,000 from the quoted $40,000.

- In theory you would have added the SAME ARV and potentially take home the same $40,000 Home Improvement Loan, which (being $40,000) should be enough to pay the LOC off that you used for capital for material and labour, as well as to pay yourself back for the down payment of the home.

I’ve taken on the strategy of getting quotes for a few new windows, a new basement kitchen, and expanding the basement washroom, taking out the kitchen wall in the basement for an open concept with the living room, AND adding a 5 foot privacy fence in the back yard as well as adding gravel parking spaces from the back alley.

The idea is gold, but I have a feeling that the Home Improvement Loan may only match what receipts/invoices I have for material bought and labour of the contractors.

The conflict here is that I was under the impression that the Home Improvement Loan was based on the after repair value of the home-purchase price and NOT based on what the repairs cost....

Any knowledge or experience with this strategy would be greatly appreciated.

Located in Northern Alberta,

Steve Gingerich

[Roy N.]

@Mindy Jensen - there is not an equivalent to a 203K loan in Canada.

@Steven Gingerich - we have used  +improvement financing on properties before, though none of ours have been on CMHC insured financing, so am not current on whether CMHC insures the +improvement and what constraints/conditions they place upon the draw terms {In their commercial insured products, there are requirements / constraints).

One thing to keep in mind for CMHC insured residential, high-ratio financing, is they is only generally available for owner-occupied properties.

Unless there are terms demanded by the CMHC insurance, depending on the lender, you may be able to arrange the +improvement as periodic construction draws (you will need supporting paperwork) or you may have to wait until all work is complete and submit your pile of receipts.