Purchase Plus Improvements

Purchase plus improvements is a mortgage feature that finances renovations as part of the purchase, letting a buyer borrow for both the home and the planned work in one mortgage. Instead of buying first and arranging separate renovation financing later, the borrower adds the estimated renovation cost to the mortgage at the outset.

The feature is most often built into a high-ratio mortgage, so mortgage default insurance from CMHC, Sagen, or Canada Guaranty applies and the down payment is less than 20% of the purchase price. Some lenders offer comparable programs on conventional mortgages. Because the loan is approved against the property's expected value once the work is finished — the as-improved value — the lender needs documentation showing both the purchase price and the renovation cost.

How the money is advanced

The lender approves a base mortgage for the purchase plus a holdback for the improvements. The holdback is not released at closing. The borrower completes the renovations within a set period, then an inspection or updated appraisal confirms the work, and the lender releases the funds — sometimes paying the contractor directly, sometimes reimbursing the borrower against invoices. If the work is not finished in time, or costs less than estimated, the lender may return the unused portion or apply it to the mortgage balance.

What lenders and insurers ask for

• Written quotes or estimates from licensed contractors, often for each trade.
• A scope of work describing materials and finishes.
• An appraisal supporting the as-improved value, which carries an appraisal fee.
• Evidence the borrower can cover costs up front, since the holdback arrives only after completion.

Insurers also cap the renovation portion, commonly expressed as a percentage of the purchase price, and limit eligible work to improvements that add lasting value. Confirm the current limit and eligible scope with your lender and the insurer.

Why it matters

Financing renovations inside a mortgage usually costs less interest than unsecured credit, and completing the work before moving in avoids living through the disruption. The trade-offs are extra paperwork before closing, deadlines for finishing the work, and the ordinary closing costs of a purchase, such as land transfer tax, legal fees, and title insurance. The renovation amount is still borrowed money, so it increases the mortgage principal and the interest paid over the amortization period.