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It can be frustrating finding and financing a property that you want to live in. You might find your dream home, only to find out that it is in need of some major renovations. The costs of renovations can really add up, and you might not be able to afford them. Luckily, there is a solution that will allow you to purchase a property while also covering the costs of renovations—a purchase plus improvements mortgage.

What Is A Purchase Plus Improvements (PPI) Mortgage? 

A purchase plus improvements mortgage allows you to lump in the cost of renovations with the purchase price of a home. This mortgage is available for existing properties and for new construction properties. One of the main benefits of a purchase plus improvement mortgage is that you can buy a house that is more affordable and then add value almost immediately by making specific renovations.

Canada’s Three Main Purchase Plus Improvements Mortgage Programs

In Canada, there are three main providers of purchase plus improvements programs. Typically, as the home buyer, you won’t have any interaction with these providers unless your down payment is less than 20%. But it’s still important to understand who these providers are and how their programs differ.

CMHC Improvement 

CMHC Improvement is an option for consumers who are purchasing an existing house as well as those looking to build a new house.

To learn more about the CMHC Improvement program, click here.

Canada Guaranty Purchase Advantage Plus

Purchase Advantage Plus is designed to help Canadian consumers purchase a home and add value through renovations.

To learn more about the Canada Guaranty Purchase Advantage Plus program, click here.

Sagen Purchase Plus Improvements Program

Another option for homebuyers who wish to purchase a home while adding value immediately through improvements.

To learn more about the Sagen Purchase Plus Improvements Program, click here.

How Does A Purchase Plus Improvements (PPI) Mortgage Work?

A purchase plus improvements mortgage is like a conventional mortgage where you get enough money to purchase a house, only you get a little extra money to cover the cost of renovations. Your improvements have to be permanent and add value to the home, such as roofing, painting, new flooring, or a furnace. Because your improvements have to be permanent, you can’t get appliances or other non-permanent fixtures covered by a purchase plus improvements mortgage.

How To Apply For a Purchase Plus Improvements Mortgage?

The process of applying for a Purchase Plus Improvements mortgage varies by lender, but generally, here’s what you can expect:

Step 1: Find the Property and Assess Renovation Needs and Costs

Find the house you want to purchase and determine the exact renovations you want to complete. This typically must include quotes from a contractor.

Step 2: Apply For  Mortgage Approval Based on the Property’s Current Condition

Obtain a mortgage that includes the cost of the renovations you want to complete. You’ll need to speak with a mortgage specialist about your purchase plus improvements mortgage options. You’ll also need to provide the renovation quote from your contractor.

Step 3: Close on The House

Go through the typical home buying process and take possession of the house. 

Step 4: Start Renovations

Once you take possession of the house, you can get your contractor to start work right away as the renovations must be completed within 90 days (or 120 days depending on the lender). Your lender will typically send your lawyer the money needed for the renovations which will be held in trust until the work is complete.

Step 5: Home Evaluation

Once the renovations are completed, your lender will send someone to evaluate the work and approve it. Then your lender will send the money to pay your contractor for their work. 

What Are The Requirements For A Purchase Plus Improvements (PPI) Mortgage? 

To get a purchase plus improvements mortgage, you’ll need to ensure the property you’re buying is eligible. Similarly, depending on the property size, you’ll need to ensure it meets the minimum equity requirements. 

Types Of Properties Eligible

  • Properties with 1-4 units, with one unit being occupied as the principal residence 
  • Both new and old properties 

Minimum Equity Requirements

1 – 2 units5% on the first $500,000 of the home value
10% on the rest on the home value
3 – 4 units10%
Rental Properties 20%

Things To Consider When Applying For A Purchase Plus Improvements (PPI) Mortgage

There are some things to keep in mind when applying for a purchase plus improvements mortgage:

  • Renovation Time Limits – Different lenders offer you different time limits to finish your renovation, so be sure to pick a lender that will give you a time limit that works for you. Lenders offer up to 90 and 365 days to finish your renovation.
  • Get A Price Quote From A Contractor – You need to get a price quote from a contractor so your lender knows how much money to give you for your renovation.
  • You Can’t Add Extra Money To Your Mortgage After Closing – You have to submit renovation quotes when applying for your mortgage, and the extra money you get from your lender can’t exceed the amount provided in the quotes.
  • DIY Renovation – Some lenders make you get a third-party contractor to do your renovations and do not allow you to do any renovations yourself.
  • Renovation Must Increase Property Value – Your mortgage appraiser generally requires that your renovation will increase your property’s value. If it doesn’t, you might be responsible for paying at least some of the renovation costs out of your own pocket.
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Alternative Ways To Finance A Home Renovation

There are some options other than a purchase plus improvements mortgage when it comes to financing a home renovation. 

  • Cash – You could pay for your renovation in cash if you have the cash on hand to do so. Whether you can cover the whole amount or partially, this would help lower the cost of borrowing. 
  • Credit Card – You could also pay for your renovations with a credit card. However, you should only consider this option if you can pay off the amount within the same credit billing cycle. 
  • Line of Credit – A line of credit is another option. It provides instant access to the funds and you only pay interest on what you use. Moreover, like a credit card, you can simply pay the minimum payment until you’re ready to pay off your balance.  Be sure to keep an eye on the interest rates though, since interest rates for this financing option will usually cost you more than a purchase plus improvements mortgage would.

What About A HELOC? 

You can also fund renovations through a home equity line of credit (HELOC). This kind of line of credit is secured against the equity you’ve built, so this means you already need to own a house. A HELOC is particularly good for renovations because it’s a type of revolving credit, similar to a credit card. You’ll have access to a set amount of money and can use however much is needed for your renovations. You’ll also only be charged interest on the amount you use. The upside of a HELOC is that they usually have lower interest rates than other financing options like credit cards or personal lines of credit, and these interest rates are often fixed.

Bottom Line

A purchase plus improvements mortgage is a great way to pay for a property that you want to renovate. You get money to purchase the property like a conventional mortgage, and you also get some extra money to cover the cost of renovations. The big upside of a purchase plus improvements mortgage is that the cost of renovations is included in the mortgage, meaning that you just have to make mortgage payments. There are no other loans payments to make. While there are some requirements and restrictions, a purchase plus improvements mortgage is fairly flexible and lets you cover the cost of renovations with little headache.

Matthew Taylor avatar on Loans Canada
Matthew Taylor

Matthew joined the Loans Canada writing team in 2021 while was finishing up a Bachelor's degree at the University of Saskatchewan. It was there that he discovered his love of writing. His work has appeared in several publications, including the Canadian Student Review and NewEngineer.com. In his spare time, Matthew enjoys reading, geocaching, and spending time with his family and pets.

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