What is a purchase plus improvements mortgage in Canada?

A purchase plus improvements mortgage allows you to include the cost of renovations — up to a set limit — in your mortgage at the time of purchase. Instead of buying the home and then financing renovations separately, the renovation costs are rolled into the total mortgage amount and funded through a staged holdback process. The lender advances the renovation funds after the work is completed and inspected.

How much can you borrow for improvements on a purchase plus mortgage?

Most lenders cap improvements at 10–20% of the as-improved property value, typically up to $40,000–$60,000. CMHC insured purchase plus improvements mortgages allow renovations that increase the property value, with the total mortgage (purchase price plus improvements) not exceeding the as-improved appraised value. Some lenders go higher on a case-by-case basis for major structural renovations.

Can you use a purchase plus improvements mortgage with 5% down?

Yes. The minimum down payment is calculated on the purchase price (not the purchase price plus improvements). For a home priced at $400,000 with $40,000 in planned improvements, the down payment is based on $400,000 — so 5% would be $20,000. The mortgage amount would be $420,000 (minus the down payment), and CMHC insurance would apply if you put less than 20% down.

How does the holdback work on a purchase plus improvements mortgage?

The lender funds the renovation portion through a holdback: the improvement funds are held in trust and released to you in stages as the work is completed. You typically need to submit invoices and the lender may send an appraiser to verify the work. Some lenders release all funds after completion; others release in two or three draws. You usually have 90–120 days from closing to complete the renovations.

What renovations qualify for purchase plus improvements?

Qualifying renovations generally must be structural or permanent improvements that add value to the property. This includes kitchen and bathroom renovations, new flooring, roof replacement, furnace/HVAC, windows, foundation repairs, electrical and plumbing upgrades, and additions. Cosmetic-only items, furniture, appliances (in some cases), and landscaping typically do not qualify.

Purchase Plus Improvements Mortgage Canada: Buy and Renovate With One Loan (2026)

The purchase plus improvements mortgage is one of the most underused financing tools in Canadian real estate. It lets you roll the cost of renovations into your mortgage when you buy a fixer-upper, so you get one loan, one interest rate, and one monthly payment that covers both the purchase and the upgrades. For buyers who have found a home with great bones but outdated finishes — or one that needs mechanical work — this product avoids the need for a separate renovation loan, HELOC, or line of credit at a higher rate.

The concept is straightforward: you buy a property, the lender appraises it at its “as-improved” value (what it will be worth after renovations), and the mortgage is based on that higher value. The renovation funds are held back and released to you as the work is completed.

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 purchase plus improvements mortgage
4	Lender orders two appraisals: “as-is” value and “as-improved” value
5	Mortgage is approved based on as-improved value
6	You close on the property at the purchase price
7	Renovation funds are held back by the lender
8	You complete renovations (typically within 90–120 days)
9	Submit invoices and/or appraiser verifies completion
10	Lender releases holdback funds

The Two Appraisals

The lender needs to know:

As-is value — what the property is worth today, before any work
As-improved value — what it will be worth after the planned renovations are completed

Your mortgage cannot exceed the as-improved value (minus your required down payment). Both appraisals are typically done by the same appraiser at the same time based on 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
Total financing needed	$470,000
Down payment (5% of $425,000)	$21,250
Mortgage amount	$448,750
CMHC premium (4.00%)	$17,950
Total mortgage with CMHC	$466,700

Cost Comparison: Purchase Plus vs Separate Financing

Approach	Mortgage Rate	Reno Financing Rate	Effective Blended Rate	Monthly Cost
Purchase plus improvements	4.59% on $466,700	Included at 4.59%	4.59%	$2,594
Standard mortgage + personal loan	4.59% on $403,750	8.99% on $45,000	~5.08% blended	$2,668
Standard mortgage + credit card	4.59% on $403,750	19.99% on $45,000	~6.24% blended	$2,876
Standard mortgage + HELOC	4.59% on $403,750	6.45% on $45,000	~4.79% blended	$2,618

The purchase plus improvements mortgage is the cheapest option because the renovation funds are financed at mortgage rates (4–5%) rather than personal loan rates (8–10%), credit card rates (20%), or HELOC rates (6–7%).

Over 5 years, the savings range from:

vs personal loan: ~$4,440
vs HELOC: ~$1,440
vs credit card: ~$16,920

Eligibility Requirements

Property Requirements

Requirement	Details
Property type	Single-family homes, condos, townhouses, duplexes (1–4 units)
Occupancy	Must be owner-occupied (primary residence)
Condition	Habitable at closing — cannot be a teardown or gut renovation
Location	Must be in a location served by standard lenders

Renovation Requirements

Requirement	Details
Type of work	Must be permanent improvements that add value
Contractor	Licensed contractor required (most lenders)
Cost documentation	Detailed quotes and scope of work required
Timeline	Must be completed within 90–120 days (lender-dependent)
Maximum amount	Typically 10–20% of as-improved value, or $40,000–$60,000

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 the part that makes this product different from a standard mortgage. Here is how it works at most lenders:

How Funds Are Released

Stage	What Happens	Funds Released
Closing	You take possession of the home; renovation funds held by lawyer or lender	0%
Progress draw 1 (optional)	~50% of work completed; lender may inspect	50% of holdback
Final draw	All work completed; appraiser or lender inspector verifies	Remaining 100%

Some lenders release everything in one draw only after all work is done. Others allow up to three progress draws. Ask your lender before committing.

Important Holdback Rules

Rule	Details
Interest accrues on full mortgage	You pay interest on the entire mortgage amount from closing, including the holdback
Timeline	Typically 90–120 days to complete work
Extensions	Possible but not guaranteed; may require additional fees
Changes to scope	Must be approved by lender; changes to the renovation plan may require new appraisal
Cost overruns	You cover anything above the approved amount out of pocket

The fact that you pay interest on the full mortgage from day one — even though the holdback funds have not been released — is a real cost. On a $45,000 holdback at 4.59%, that is approximately $172/month in interest on money sitting in trust. Over a 3-month renovation, that is about $516 in carrying cost.

Lender Policies

Big 5 Banks

Lender	Offers Purchase Plus?	Max Improvement Amount	Holdback Release
RBC	Yes	Up to 20% of as-improved value	1–2 draws
TD	Yes	Case-by-case; typically $40,000–$60,000	1 draw
BMO	Yes	Up to 20% of as-improved value	1–2 draws
Scotiabank	Yes	Case-by-case	1 draw
CIBC	Yes	Up to 20% of as-improved value	1–2 draws

Monoline Lenders

Lender	Offers Purchase Plus?	Notes
MCAP	Yes	Popular option for brokers
First National	Yes	Available through brokers
CMLS	Limited	Case-by-case
Merix/Lendwise	Yes	Competitive rates

CMHC, Sagen, and Canada Guaranty

All three default insurers support purchase plus improvements on insured mortgages. Key rules:

Insurer Rule	Details
Improvements must add value	Cosmetic-only may be excluded
As-improved value sets the ceiling	Total mortgage cannot exceed as-improved value
Standard insurance premiums apply	Calculated on total mortgage (purchase + improvements)
Down payment based on purchase price	Not on purchase price + improvements

Common Pitfalls

Renovation Budget Overruns

The number one problem buyers face with purchase plus improvements is underestimating renovation costs. If your approved holdback is $45,000 and the renovations end up costing $65,000, you must cover the $20,000 difference out of pocket.

How to mitigate:

Get at least two contractor quotes before applying
Add a 15–20% contingency to your budget
Prioritize structural and mechanical work over cosmetic upgrades
Get detailed, itemized quotes — not rough estimates

Tight Timelines

The 90–120 day completion window is firm at most lenders. If your contractors run behind schedule:

Consequence	Impact
Extension request	Additional appraisal fee ($300–500) and administrative delay
Funds not released	You have paid interest on the holdback for months with nothing to show
Lender may cancel holdback	Rare, but possible if work is significantly delayed