A purchase plus improvements mortgage lets you roll the cost of renovations into your mortgage when you buy a home that needs work, so one loan, one rate and one payment cover both the purchase and the upgrades. For a buyer who has found a home with good bones but dated finishes, or one that needs mechanical work, it avoids a separate renovation loan, HELOC or line of credit at a higher rate. This page is part of our guide to mortgage types and features.
The lender appraises the property at its “as-improved” value (what it will be worth after the work), bases the mortgage on that value, and holds the renovation money back until the work is done.
How It Works: Step by Step
| Step | What Happens |
|---|---|
| 1 | Find a property that needs work |
| 2 | Get contractor quotes for the planned renovations |
| 3 | Apply for a purchase plus improvements mortgage |
| 4 | The appraiser estimates the “as-is” value and the “as-improved” value |
| 5 | The mortgage is approved on the lending value (below) |
| 6 | You close on the property at the purchase price |
| 7 | The renovation funds are held back by the lender or your lawyer |
| 8 | You complete the renovations (typically within 90-120 days) |
| 9 | You submit invoices and/or an appraiser verifies completion |
| 10 | The lender releases the holdback |
The Two Values and the Lending Value
- As-is value: what the property is worth today, before any work
- As-improved value: what it will be worth after the planned renovations
For an insured mortgage, CMHC sets the lending value at the lesser of the as-improved value and the as-is value plus the cost of the improvements, and uses the as-improved value to work out the loan-to-value ratio and the down payment requirement. So the minimum down payment is calculated on the price plus the improvements, not on the purchase price alone. The minimum down payment is 5% of the first $500,000 and 10% of the rest for homes under $1.5 million, and 20% at $1.5 million or more. Both values are usually estimated by the same appraiser at the same time, from the renovation plans and contractor quotes you provide.
Financial Example
| Component | Amount |
|---|---|
| Purchase price | $425,000 |
| Planned renovations | $45,000 |
| As-improved appraised value | $490,000 |
| As-is value plus improvements | $470,000 |
| Lending value (the lesser of the two) | $470,000 |
| Minimum down payment (5% of the lending value) | $23,500 |
| Mortgage amount | $446,500 |
| Insurance premium (4.00%) | $17,860 |
| Total mortgage with premium | $464,360 |
The premium in this example is the 25-year rate for a loan of 95% of the lending value. How premiums vary with the down payment, and how to work out your own, is in the CMHC premium calculator.
What the Renovation Money Costs Under Each Option
The main saving is that the $45,000 is borrowed at the mortgage rate. First-year interest on $45,000 at illustrative rates:
| How the $45,000 is financed | Illustrative rate | First-year interest |
|---|---|---|
| Inside the mortgage (purchase plus improvements) | 4.59% | $2,066 |
| HELOC (once you have enough equity) | 6.45% | $2,903 |
| Personal loan | 8.99% | $4,045 |
| Credit card | 19.99% | $8,996 |
A HELOC usually isn’t available right after a purchase with a small down payment, because it needs equity in the home: FCAC lists the equity you need: more than 35% for a standalone HELOC and at least 20% for a HELOC combined with a mortgage. Current pricing for the alternatives is in HELOC rates in Canada and on our mortgage rates pages.
Eligibility Requirements
Property Requirements
| Requirement | Details |
|---|---|
| Property type | Single-family homes, condos, townhouses and 1-4 unit properties |
| Occupancy | Insured financing with less than 20% down is for owner-occupied homes; CMHC also insures 2-4 unit rentals at a lower loan-to-value |
| Condition | Habitable at closing; not a teardown or full gut renovation |
| Location | Served by standard lenders |
Renovation Requirements
| Requirement | Details |
|---|---|
| Type of work | Permanent improvements that add value |
| Contractor | Licensed contractor (required by most lenders) |
| Cost documentation | Detailed quotes and scope of work |
| Timeline | Completed within 90-120 days (lender-dependent) |
| Maximum amount | Set by the lender, often 10-20% of the as-improved value |
What Qualifies as an Improvement
| Qualifies | Does Not Qualify |
|---|---|
| Kitchen renovation | Furniture and decor |
| Bathroom renovation | Appliances (some lenders allow) |
| Roof replacement | Landscaping (cosmetic only) |
| New windows and doors | Hot tub or pool (some exceptions) |
| Furnace / HVAC replacement | Maintenance and repairs (e.g., painting) |
| Electrical rewiring | Detached structures (some exceptions) |
| Plumbing upgrades | Temporary structures |
| Foundation repair | Security systems |
| Flooring | Cleaning and staging |
| Additions and extensions | Demolition without rebuild |
| Basement finishing | Work already completed before closing |
| Accessibility modifications | Tools and equipment |
The Holdback Process
The holdback is what makes this product different from a standard mortgage.
How Funds Are Released
| Stage | What Happens | Funds Released |
|---|---|---|
| Closing | You take possession; the renovation funds are held by the lawyer or lender | 0% |
| Progress draw 1 (optional) | About half the work done; the lender may inspect | 50% of holdback |
| Final draw | All work done; an appraiser or inspector verifies | The rest |
Some lenders release everything in one draw after all the work is done; others allow up to three progress draws. The draw schedule is worth confirming before you commit.
Important Holdback Rules
| Rule | Details |
|---|---|
| Interest on the full mortgage | You pay interest on the whole mortgage from closing, including the holdback |
| Timeline | Typically 90-120 days to complete the work |
| Extensions | Possible but not guaranteed; may cost extra |
| Changes to scope | Need lender approval and may need a new appraisal |
| Cost overruns | Anything above the approved amount is paid out of pocket |
Paying interest on money that hasn’t been released yet is a real cost.
On a $45,000 holdback at 4.59%, that is about $172 a month in interest on money sitting in trust, or about $516 over a 3-month renovation.
Lender and Insurer Policies
Most big banks (RBC, TD, BMO, Scotiabank, CIBC) and lenders that work through brokers, such as MCAP and First National, offer purchase plus improvements, each with its own limit on the improvement amount and its own draw schedule. A mortgage broker can compare the programs.
For insured mortgages, CMHC’s version is CMHC Improvement, and Sagen and Canada Guaranty have their own programs. Under CMHC’s rules:
| CMHC rule | Details |
|---|---|
| Lending value | The lesser of the as-improved value and the as-is value plus the cost of improvements |
| Down payment and loan-to-value | Based on the as-improved value, not the purchase price alone |
| Maximum loan-to-value | Up to 95% for owner-occupied 1-2 unit homes, up to 90% for 3-4 units |
| Price limit | The lending value or as-improved value must be below $1.5 million |
| Premium | Charged on the total loan (purchase plus improvements) |
| Documentation | Improvement lists and cost estimates, plans for major renovations, or a building permit |
Common Pitfalls
Renovation Budget Overruns
The most common problem is underestimating the renovation cost. If the approved holdback is $45,000 and the work ends up costing $65,000, the $20,000 difference comes out of your pocket.
Ways to limit the risk:
- Get at least two contractor quotes before applying
- Add a 15-20% contingency to the budget
- Put structural and mechanical work ahead of cosmetic upgrades
- Use detailed, itemized quotes rather than rough estimates
Tight Timelines
The 90-120 day completion window is firm at most lenders. If contractors fall behind:
| Consequence | Impact |
|---|---|
| Extension request | An extra appraisal fee ($300-500) and administrative delay |
| Funds not released | Months of interest on the holdback with nothing to show for it |
| Lender may cancel the holdback | Rare, but possible if work is badly delayed |
Ways to limit the risk:
- Line up contractors before closing
- Order materials early
- Start the work right after closing and build in buffer time
Scope Creep
If you find more problems during the renovation (mould behind walls, knob-and-tube wiring), you can’t simply increase the holdback. Changes need lender approval and may need a revised appraisal.
Purchase Plus Improvements vs Other Renovation Financing
| Feature | Purchase Plus | Renovation Loan | HELOC | Personal Loan |
|---|---|---|---|---|
| Interest rate | Mortgage rate | Higher than a mortgage | Prime + a margin | Higher still |
| Timing | Arranged at purchase | Anytime | Once you have enough equity | Anytime |
| Repayment | Amortized with the mortgage | 5-15 years | Interest-only minimum | 1-7 years |
| Collateral | The home | Unsecured or secured | The home | Unsecured |
| Tax deductible? | No (principal residence) | No | No (principal residence) | No |
For renovations planned at the time of purchase, borrowing at the mortgage rate is usually the cheapest option. For work on a home you already own, the choices are compared in home renovation loans. Buying a home that needs work, beyond the financing, is covered in buying a fixer-upper, and building from scratch uses a different product, a construction loan.
Tips for a Smooth Application
| Tip | Why It Matters |
|---|---|
| Work with a mortgage broker | Brokers can compare several lenders’ programs |
| Get detailed contractor quotes | Vague estimates slow or stop the application |
| Include a before-and-after scope | Helps the appraiser value the planned improvements |
| Have contractor references ready | Some lenders check the contractor |
| Plan for out-of-pocket costs | Appliances, cosmetic touches and overruns are on you |
| Know your timeline | Have contractors committed to start dates |
Related Resources
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and September 29, 2026. How we check facts.
- CMHC: CMHC Purchase
- CMHC: Home Start
- CMHC: CMHC Refinance for Building Secondary Suites
- Department of Finance Canada: Boldest mortgage reforms in decades come into force today
- Financial Consumer Agency of Canada: How much you need for a down payment
- Financial Consumer Agency of Canada: Home equity lines of credit
- Justice Laws (Canada): Bank Act
- Justice Laws (Canada): Eligible Mortgage Loan Regulations
- OSFI: Residential mortgage underwriting practices and procedures