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.
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.
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 is an option for consumers who are purchasing an existing house as well as those looking to build a new house.
Purchase Advantage Plus is designed to help Canadian consumers purchase a home and add value through renovations.
Another option for homebuyers who wish to purchase a home while adding value immediately through improvements.
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.
The process of applying for a Purchase Plus Improvements mortgage varies by lender, but generally, here’s what you can expect:
Find the house you want to purchase and determine the exact renovations you want to complete. This typically must include quotes from a contractor.
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.
Go through the typical home buying process and take possession of the house.
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.
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.
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
Minimum Equity Requirements
| 1 – 2 units | 5% on the first $500,000 of the home value 10% on the rest on the home value |
| 3 – 4 units | 10% |
| Rental Properties | 20% |
There are some things to keep in mind when applying for a purchase plus improvements mortgage:
There are some options other than a purchase plus improvements mortgage when it comes to financing a home renovation.
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.
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.
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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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