AIG's New Upgrade Advantage

When you buy a brand new house or condo, the builder will often sell you upgrades--pot lights, kitchen counters, nicer taps, etc.  Sometimes, however, it's tricky to roll them into a mortgage.

If the upgrades are included in your purchase agreement it's pretty simple.  The lender/insurer is usually okay with lending on the property and upgrades (assuming the upgrades add reasonable value to the home).

If your builder makes you pick your upgrades and pay for them after you sign the purchase agreement--and many do--then it's a little different.  Up until last Thursday, Canada's three insurers didn't have a formal program for insuring such mortgages.  (What is "mortgage insurance?")

Insurers did have "purchase plus improvements" programs, but these were designed more for improvements that are done after closing. 

Alternatively, borrowers would typically need to get an amendment to the purchase agreement to add in the upgrades after the fact.  Not all builders will do this, however.

As of this week, things have changed for the better.  AIG's new Upgrade Advantage program now explicitly insures upgrades not included in the original purchase price.  What a great idea!

Here are some things to keep in mind about the program:

• Upgrade Advantage is only intended for new construction purchases (houses or condominiums)
• AIG allows up to $75,000 in upgrades, subject to a maximum of 15% of the purchase price.  (10% was the previous rule of thumb for allowable improvements.)
• AIG permits a loan-to-value up to 95%
• Minimum credit score is 650 (with 35% GDS ratio; 42% TDS ratio) or 680 (with no GDS; 44% TDS ratio)
• Allowable upgrades include bathroom, kitchen, lighting, fireplace, HVAC, sound proofing/insulation, shingles, windows/doors, decks, and energy efficiency upgrades.
• Kitchen appliances are excluded
• The program is not available when progress construction draws are used.

AIG United Guaranty Canada is Canada's third largest mortgage default insurer.  It insures mortgages for over 30 lenders across the country.