How to Buy the Home You Want and Finance the Renovations at the Same Time
The Mortgage Strategy Many Canadian Homebuyers Overlook
Imagine finding a home for $650,000.
The house is structurally sound, but the kitchen is dated, the floors need replacing, the bathroom needs work and the basement requires finishing. You estimate the renovations will cost $75,000.
The problem? You have enough money for the down payment and closing costs but not another $75,000 sitting in your bank account. Many buyers immediately walk away. That may be a mistake. A Purchase Plus Improvements mortgage can potentially allow you to finance eligible improvements as part of the mortgage financing arranged when you purchase the property. CMHC officially refers to its insured version as CMHC Improvement.
For eligible owner-occupied 1–2 unit properties, CMHC says insured financing can reach up to 95% of the as-improved value, subject to the applicable lending-value and eligibility rules. The key is understanding how the numbers work before you make an offer.
What Is Purchase Plus Improvements?
The Simple Example
Purchase Plus Improvements is a mortgage strategy designed for a buyer purchasing a property that requires renovations.
Instead of thinking: Purchase the house now → renovate later → figure out financing afterward
You structure the transaction around:
Purchase the house + approved improvements → finance the project through the mortgage structure
The lender and insurer look at the property based on both:
its current/as-is value, andits anticipated/as-improved value after the proposed work. CMHC specifically states that improvement financing involves assessing the property on both an as-is and as-improved basis.
This creates an opportunity for buyers to purchase a property that needs work rather than paying a premium for a fully renovated home.
Let’s say:
| Item | Amount |
|---|---|
|
Purchase Price |
$600,000 |
|
Renovations |
$80,000 |
|
Total project |
$680,000 |
|
Estimated as-improved
value |
$750,000 |
The important number isn’t simply the $680,000 total project cost.
The lender needs to determine whether the completed property supports the proposed
financing.
CMHCs current rules state that for improvement financing, the lending value is the
lesser of the as-improved value or the as-is value plus the cost of improvements.
In our example:
As-is value + improvements
$600,000 + $80,000 = $680,000
versus
As-improved value $750,000
Therefore, the applicable lending value under that CMHC calculation would be
$680,000, assuming those figures are accepted by the insurer/lender.
That’s an extremely important distinction.
Purchase Plus Improvements does NOT mean:
“The bank will automatically lend me 95% of whatever I think my renovated house will be worth.”
The valuation, improvement costs, property eligibility, borrower qualification and lender/insurer guidelines all matter.
Step 1: Find the Right Property
This is where the strategy begins. You’re looking for a property where: The purchase price makes sense relative to comparable properties. The proposed renovations are realistic. The completed property should have sufficient market value. The renovation scope can be clearly documented.
The improvements are acceptable to the lender and insurer. The property itself qualifies for the mortgage product.
The ideal Purchase Plus Improvements property Think: “Ugly but fundamentally good.” Examples might include: Dated kitchen Old flooring Outdated bathroom Cosmetic improvements Energy-efficiency upgrades Basement finishing where permitted Certain structural or functional improvements Other improvements acceptable under the lender’s program The objective isn’t necessarily to turn a $500,000 house into a $900,000 house.
The objective is to identify a property where strategic improvements can create
meaningful value and improve the home’s functionality.
Step 2: Get Pre-Approved BEFORE You Shop
This is one of the biggest mistakes I see buyers make. Don’t fall in love with the property first and ask: “Can we finance the renovation?” afterwards.
Instead, have the mortgage professional analyze your:
Income
Employment
Credit
Existing debts
Down payment
Closing costs
Maximum mortgage
Stress-test qualification
Proposed renovation budget before you write an offer.
Your mortgage broker should be able to tell you approximately: “Here is your purchase budget, and here is the maximum improvement budget that makes sense within your qualification.” That changes the entire house-hunting strategy.
Step 3: Build a REAL Renovation Budget
This is where amateur planning gets expensive. Don’t tell the lender: “The kitchen will probably cost $20,000.” Get actual documentation.
A strong renovation package can include:
- Contractor quotes
- Detailed scope of work
- Material estimates
- Labour costs
- Plans
- Drawings
- Permit information where applicable
- Product specifications
- Timelines
Mortgage Broker Tip
Don’t intentionally underestimate your renovation costs just to make the deal appear affordable.
If your renovation is actually going to cost $70,000 and you submit $40,000, you may create a $30,000 funding problem later. Get realistic numbers upfront.
Don’t intentionally underestimate your renovation costs just to make the deal appear affordable.
If your renovation is actually going to cost $70,000 and you submit $40,000, you may create a $30,000 funding problem later. Get realistic numbers upfront.
Step 4: Determine the As-Improved Value
This is one of the most important steps.
The property has:
As-Is Value
What the property is worth today, before renovations.
As-Improved Value
What the property is expected to be worth after the proposed improvements are
completed.
The lender/insurer uses valuation methodology to determine the lending value.
CMHC says that if proposed improvements are generally accepted to add value, the
lender can submit the as-is value plus the cost of improvements to CMHC, with the
lending value being the lesser of that figure or the as-improved value.
This protects the lender and insurer from financing improvements that don't reasonably
translate into property value.
Step 5: Understand the 95% Rule
For eligible owner-occupied properties with 1–2 units, CMHC Improvement currently permits insured financing of up to 95% of the applicable lending value, subject to all program requirements.
For owner-occupied 3–4 unit properties, the maximum is generally 90%. For homeowner loans, CMHC’s minimum equity requirements are currently:
• 5% of the first $500,000
• 10% of the portion above $500,000 for eligible 1–2 unit properties.
Example
Suppose the applicable lending value is: $700,000
The minimum down payment calculation would be:
First $500,000 × 5% = $25,000
Remaining $200,000 × 10% = $20,000
from simply saying:
“I need 5% down.”
At higher purchase prices, the calculation changes.
Step 6: Understand How the Improvement Money Is Advanced
This is where Purchase Plus Improvements differs from an ordinary mortgage. The renovation funds aren’t necessarily handed to you as unrestricted cash on closing.
CMHC currently provides two improvement-advance approaches: Single Advance For improvement costs 10% or less of the as-improved value. Progress Advances For improvement costs greater than 10% of the as-improved value.
CMHC indicates that progress advances can involve up to four consecutive advances under its Full Service option, with lender validation under its Basic Service option. Important: The exact mechanics including timing, inspection requirements, holdbacks, fees and how contractors are paid can vary by lender. That’s why choosing the right mortgage broker and lender is critical.
Step 7: Make Sure Your Contractor Understands the Financing
Your contractor isn’t just building a kitchen.
They’re potentially working within a mortgage-funded construction/renovation process.
Before hiring anyone, make sure they understand:
The approved scope of work Required documentation Draw/advance procedures Inspection requirements Completion requirements Payment timing Permit requirements Your lenders process This is particularly important because a contractor expecting a large upfront payment may not fit the lender’s funding process.
Step 8: Don't Change the Renovation Plan Without Checking First
This is another major mistake.
Imagine your approved renovation is: $65,000
You decide during construction: “Let’s add another $25,000 and completely redo the basement.”
That doesn’t automatically mean the lender will provide another $25,000.
The mortgage was approved based on a specific project and specific numbers.
My rule: Get lender/broker approval before materially changing the project. Don’t assume additional costs will simply be added to your mortgage.
Step 9: Complete the Work
Now the fun begins. Depending on the project, this might include:
Demolition
Electrical
Plumbing
HVAC
Insulation
Drywall
Flooring
Cabinetry
Bathrooms
Windows
Doors
Roofing
Painting
Landscaping
Other approved improvements
The work needs to be completed according to the requirements established by your
lender and mortgage insurer.
Where permits are required, get the permits.
Skipping permits can create serious problems involving:
Financing
Insurance
Property value
Future resale
Municipal enforcement
Step 10: Document EVERYTHING
This is where a professional approach pays off.
Keep:
Invoices
Receipts
Contractor documentation
Permit documentation
Inspection reports
Before photos
During-construction photos
After photos
Change orders
Final invoices
Create a digital folder from
Day 1. For example: 123 Main Street – Purchase Plus Improvements
01 Purchase
02 Appraisal
03 Contractor
04 Quotes
05 Permits
06 Invoices
07 Inspections
08 Final Photos
This makes your life dramatically easier.
Step 11: The Property Is Inspected/Validated
Depending on the lender’s process, the completed work may need to be validated before the improvement funds are released.
This is another reason I recommend having a mortgage professional involved who has actually handled Purchase Plus Improvements transactions, rather than someone who has only heard of the product.
The financing isn’t simply: “Here’s $80,000. Renovate whatever you want.” The funds are tied to an approved improvement project.
Step 12: Enjoy the Finished Property
Now you have something potentially much more valuable than simply buying a renovated home.
A Worked Example
Let’s make this practical.
Purchase
Purchase price: $600,000
Renovations
Kitchen: $35,000
Bathroom: $15,000
Flooring: $10,000
Paint/trim: $5,000
Electrical: $10,000
Contingency: $5,000
Total renovations: $80,000
Total project cost
$680,000
Suppose the accepted valuation analysis supports an as-improved value of $730,000.
Under CMHC’s lending-value calculation, the applicable value would be the lesser of:
$730,000
or
$600,000 + $80,000 = $680,000
So the lending value could be $680,000, subject to the lender/insurer's actual
underwriting and valuation.
The important lesson is:
The renovation budget does not automatically equal the amount you can borrow.
The numbers must work together.
The “Top 1% Broker” Strategy: Don't Renovate Just Because You Can
Here’s where I would challenge a client.
Just because something is eligible for financing doesn’t mean you should do it.
A smart renovation should ideally accomplish at least one of these:
1. Improve functionality
Example:
Converting an unusable kitchen into a functional family kitchen.
2. Correct a deficiency
Example:
Replacing outdated electrical or addressing a failing roof.
3. Improve marketability
Example:
Updating an extremely dated bathroom or flooring.
4. Improve energy efficiency
Example:
Windows, insulation, air sealing or mechanical upgrades.
5. Increase usable living space
Where legally permitted and financially justified.
Bonus Strategy: Look at CMHC Eco Improvement
Here’s something many buyers don’t know.
If you use CMHC-insured financing and subsequently complete qualifying energy-
efficient improvements, you may qualify for CMHC Eco Improvement.
CMHC currently provides a 25% partial refund of the mortgage insurance premium
for eligible borrowers who complete at least $20,000 of qualifying energy-efficient
renovations.
Eligible categories include:
Building envelope improvements
Insulation
Windows
Doors
Roofing/attic improvements
Air sealing
Foundation work
HVAC/mechanical improvements
Heat pumps
Renewable-energy systems
You generally have up to two years from mortgage closing to submit the Eco
Improvement application, subject to the program requirements.
That’s a powerful combination:
Buy fixer-upper → finance improvements → make energy-efficient upgrades →
potentially receive a portion of the CMHC premium back.
Always verify eligibility with CMHC and your lender before relying on a rebate in your
financial calculations.
What Can Go Wrong?
Purchase Plus Improvements is powerful but it isn’t magic.
Mistake #1: Overestimating the Finished Value
A $50,000 renovation doesn’t necessarily increase a home’s market value by $50,000.
And a $100,000 renovation doesn’t necessarily create $100,000 of additional value.
Mistake #2: Underestimating Construction Costs
This is probably the biggest practical risk.
A $60,000 renovation can become $75,000.
That’s why you should have a contingency plan.
Mistake #3: Choosing the Wrong Contractor
The cheapest contractor isn’t necessarily the best contractor.
You want:
Proper insurance
References
Written contract
Detailed scope
Appropriate licensing where required
Permit knowledge
Clear payment terms
Mistake #4: Assuming Every Renovation Qualifies
Not every improvement is automatically acceptable.
The lender and insurer ultimately determine what qualifies within the applicable
program.
Mistake #5: Treating the Renovation Money Like a Cash-
Out Refinance
Purchase Plus Improvements is structured around the purchase and approved
improvements.
It isn’t simply free equity you can spend however you want.
A Critical 2026 Mortgage Rule Update
There have been important changes to Canada’s insured mortgage rules. Since December 15, 2024, the insured-mortgage price cap has been $1.5 million, rather than $1 million.
The federal government also expanded eligibility for 30-year insured amortizations to all first-time homebuyers and buyers of newly constructed homes, subject to the applicable requirements. That can materially affect the affordability calculation for some Purchase Plus Improvements buyers.
However, don’t assume a 30-year amortization automatically applies to your renovation purchase. Your exact property, borrower status, loan-to-value and mortgage structure must be reviewed.
Your Purchase Plus Improvements Checklist
Borrower
☐ Mortgage pre-approval
☐ Income verified
☐ Credit reviewed
☐ Down payment confirmed
☐ Closing costs budgeted
☐ Debt ratios reviewed
Property
☐ Purchase price
☐ Property type
☐ Number of units
☐ As-is valuation
☐ Comparable sales
☐ Inspection
Renovation
☐ Detailed scope of work
☐ Contractor quotes
☐ Material estimates
☐ Plans/drawings if required
☐ Permit requirements identified
☐ Renovation timeline
☐ Contingency budget
Financing
☐ As-improved valuation
☐ Maximum mortgage calculated
☐ Improvement financing confirmed
☐ Advance/draw process understood
☐ Lender-specific requirements confirmed
☐ Insurance premium calculated
☐ Closing costs calculated
After Closing
☐ Contractor hired
☐ Permits obtained
☐ Work documented
☐ Invoices retained
☐ Inspections completed
☐ Improvement requirements satisfied
☐ Final advance processed
The Bottom Line
Purchase Plus Improvements can turn a “needs work” property into a legitimate
mortgage opportunity.
Instead of competing for the most beautifully renovated home on the market, you can
potentially look at properties that other buyers overlook.
The winning strategy is not:
“Buy the cheapest fixer-upper you can find.”
It is:
“Find the right property, accurately price the renovation, establish the realistic
completed value, structure the mortgage correctly, and execute the renovation
according to the lender’s requirements.”
That’s the difference between simply getting a mortgage and strategically structuring
a real-estate transaction.
And remember: CMHC's current CMHC Improvement rules provide the federal
mortgage-insurance framework, but individual lenders can have their own
underwriting, advance and documentation requirements.
The 5 Questions I Would Ask Before You Make an
Offer
1. What will this property realistically be worth after the renovations?
2. What will the renovations actually cost—not what I hope they will cost?
3. How much can I qualify for including the improvement financing?
4. How will the lender release the renovation funds?
5. What happens if the renovation costs more than expected?
If you can answer all five before writing the offer, you're operating like a sophisticated
buyer—not gambling on a renovation.
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