Purchase Plus Improvements Mortgage in Ontario

January 31, 2026 | Posted by: Lorne Andrews

Purchase Plus Improvements Mortgage in Ontario

Turning your new Ontario home into a dream home
Lorne Andrews Mortgage Broker

In fast‑moving housing markets like Toronto and other parts of Ontario, the shortage of move‑in‑ready homes means buyers often settle for properties that need work. A purchase plus improvements mortgage lets you roll the cost of renovations into your mortgage so you can make upgrades right away instead of waiting years to save separately. It’s a versatile option for first‑time buyers and repeat purchasers looking to add value to a newly purchased home.

This guide adapts the Purchase Plus Improvements Mortgage information from Spire Mortgage’s Alberta‑focused article and tailors it for Ontario borrowers. It explains how the program works, outlines eligibility rules, shows examples and highlights Ontario‑specific considerations, including how lenders calculate down payments and land‑transfer tax.

What is a purchase plus improvements mortgage?

A purchase plus improvements mortgage allows you to combine the price of a home with the cost of renovations in a single mortgage. Instead of taking out a separate loan or using high‑interest credit cards to finance upgrades, you finance renovations together with the purchase at standard mortgage rates. Spire Mortgage explains that the program gives buyers flexibility to upgrade their newly purchased property and allows them to borrow the cost of renovations (up to a certain percentage) and add it to the purchase price, resulting in one simple payment with as little as 5 % down. The renovations must add value to the property and, in practice, many lenders cap improvements at around $40,000, though exceptions up to $100,000 sometimes occur.

Ontario lenders generally follow the 10 % – 20 % / $40 000 rule. According to Meridian Credit Union, improvements cannot cost more than 20 % of the purchase price up to a maximum of $40 000, and the money is reimbursed after the work is complete. Canadian Mortgage Professionals also note that qualified borrowers may access up to 20 % of the purchase price or $40 000 (whichever is less) for improvements, but funds must be used for property improvements rather than movable chattels. Mortgage insurers Canada Guaranty and Sagen allow improvements up to 20 % of the home’s as‑improved value or $40 000, while CMHC limits improvements to 10 %.

Eligible properties

Only certain properties qualify for purchase plus improvements financing:

• Owner‑occupied 1‑to‑4 unit properties. Spire Mortgage specifies that the property must have a maximum of four units and at least one unit must be occupied as the principal residence. Meridian emphasizes that the home must be a primary residence and cannot be used to finance a rental or investment property.

• New construction or existing homes. Both new builds and resale homes are eligible.

• Secondary suites. If you plan to add a secondary suite (basement apartment), potential rental income can be used to help you qualify for a higher mortgage. This makes the program attractive for buyers seeking to offset mortgage costs with future rental income.

Renovation limits and restrictions

• Value‑adding improvements only. Projects must increase the home’s value. Cosmetic upgrades like fresh paint or flooring, structural changes such as adding rooms or finishing a basement, and energy‑efficiency upgrades are typically eligible. Furniture, appliances or movable items are not covered.

• Cost caps. Most lenders limit renovation costs to 10 % of the purchase price when your down payment is under 20 %, and up to 20 % of the purchase price when your down payment is 20 % or more. The maximum dollar amount is usually $40 000; exceptions for higher amounts require strong rationale and lender approval.

• Timeframe. Renovations must be completed promptly. Spire Mortgage notes that projects generally need to be finished within 90 days after the mortgage funds. Meridian allows 90 – 180 days depending on the lender, while Nesto suggests that projects under $40 000 must be completed within six months and larger projects can allow up to a year. Always verify the timeline with your lender.

How does a purchase plus improvements mortgage work?

The program blends mortgage finance with renovation financing in stages. Below is a simplified overview adapted for Ontario buyers.

1. Pre‑approval and house hunting

Before house hunting, obtain a pre‑approval to understand your budget. Spire Mortgage stresses that buyers should think about potential improvements while shopping and bring a third‑party contractor to prospective properties to discuss the work needed. Work with a mortgage broker familiar with purchase plus improvements to estimate how much renovation funding you can add.

2. Make an offer and get detailed quotes

Once you find a property, make your offer conditional on financing and inspections. Immediately gather written quotes from licensed contractors for the planned renovations. Lenders require a comprehensive quote that clearly outlines the work and its cost. The quote and purchase contract are submitted to your mortgage broker to secure the mortgage approval.

3. Mortgage approval and appraisal

Your broker revises your mortgage application to include the renovation costs. Lenders usually order an appraisal to confirm that the post‑renovation value justifies the larger loan. Canadian Mortgage Professionals explain that the required down payment is based on the post‑renovation value of the home. For example, if you buy a $700,000 home and plan $8,000 of improvements but the improved value is $710,000, the down payment is based on the smaller of $708,000 (purchase price plus improvements) and $710,000.

4. Closing and renovation

At closing, your lender advances the mortgage funds to the seller and holds back the renovation portion (often called the holdback) in trust with your lawyer. You pay for the renovations upfront using savings, lines of credit or credit cards. Some lenders may offer progress draws, releasing funds in stages as parts of the project are completed; however, this is not universal, so plan to cover costs until reimbursement.

5. Inspection and fund release

After the renovations are complete, a lender‑approved inspector visits the property to confirm that the work matches the quotes. Once the lender approves the inspection report, the lawyer releases the holdback funds to reimburse you or pay the contractor. If you do the renovations yourself, only the materials are reimbursed and you must keep receipts as proof of payment.

6. Enjoy your upgraded home

Once the funds are released, you continue making a single mortgage payment that now includes the renovation cost. If you decide not to complete the renovations, the unused funds are applied against the mortgage principal, but your payment remains the same. This ensures your mortgage balance decreases but doesn’t lower your monthly payment.

Example: Ontario purchase with improvements

Suppose you buy a $600 000 home in Ontario and want to add a $35 000 kitchen remodel. Under the purchase plus improvements program, your total purchase price becomes $635 000, and your down payment is calculated on that higher amount. Your lawyer advances $600,000 to the seller on closing, and the $35 000 renovation holdback is released after the work is inspected and approved. For insured mortgages (down payment under 20 %), remember that mortgage default insurance premiums will be based on the new, higher loan amount.

Ontario‑specific considerations

Land‑transfer tax and tax rebates

Ontario charges land‑transfer tax (LTT) on the purchase price only, not on the cost of approved improvements. This means rolling renovations into your mortgage doesn’t increase your LTT, which can save thousands of dollars in cities like Toronto where LTT can be substantial. The City of Toronto also has a municipal LTT on top of the provincial tax. First‑time buyers may qualify for rebates (currently up to $4 475 provincial and $4 475 municipal). Always consult your lawyer for the latest rules.

Building permits and HST

Major renovations often require building permits. Ontario’s Building Code dictates when a permit is needed for structural changes, additions or secondary suites. Failing to get proper permits can delay fund release because inspectors must verify that work complies with code. Materials and contractor labour are generally subject to HST (13 %), but you may be eligible for HST rebates on substantial renovations or the construction of secondary suites. Check with the Canada Revenue Agency and your contractor.

Energy‑efficiency incentives

Ontario homeowners upgrading insulation, windows or heating systems may qualify for government rebates such as the Canada Greener Homes Grant or municipal programs. These incentives can lower your upfront costs and may be used in conjunction with purchase plus improvements financing. Note that some insurers, such as CMHC, focus on energy‑efficient improvements and cap renovation funding at 10 % of the as‑improved value.

Suitability

A purchase plus improvements mortgage is ideal when you:

• Plan to live in the property. Meridian notes that this product cannot be used for rental or investment properties.

• Are making minor to moderate improvements. If you’re planning a major structural overhaul or building a home from scratch, a construction mortgage may be more appropriate.

• Can front the renovation costs. You must pay for the work upfront and be reimbursed later. For projects over $20 000, lenders may require proof of liquid savings equal to at least 15 % of the renovation cost.

Steps to obtain a purchase plus improvements mortgage in Ontario

1. Get pre‑approved and confirm with your broker that you’re eligible for purchase plus improvements financing.

2. Shop for a home with your renovation wish list in mind and involve a contractor for estimates.

3. Make an offer and secure detailed renovation quotes; provide these and the purchase agreement to your mortgage broker.

4. Revise your mortgage approval to include renovation costs and complete any required appraisals.

5. Close on the home, then start renovations immediately.

6. Complete the work within the lender’s timeframe (typically 90 days for projects under $40 000).

7. Order a final inspection and submit receipts; your lawyer will release the holdback funds to repay yourself or the contractor.

8. Enjoy your upgraded home!

Final thoughts

With Ontario’s competitive real‑estate market and limited inventory of updated homes, a purchase plus improvements mortgage can be a smart strategy to transform a property into your dream home while spreading the cost over the life of your mortgage. By understanding the program’s limits, timelines and upfront financing requirements, and by working with experienced mortgage professionals, you can confidently navigate the process and enjoy the benefits of an upgraded home from day one.

• Schedule a free consultation: Reach out today to discuss your goals and get a customized roadmap to homeownership. We can help you determine which programs you qualify for and how they work together.

• Stay informed: Markets and incentives change quickly. By connecting with us, you’ll receive timely updates on program enhancements and new opportunities that could save you money.

Let’s build your path to homeownership together. Contact usto book a consultation or call us at 416 276 6445 or

Let's connect by phone or zoom at a time that works for both of us. Click the appointment link https://calendly.com/lorneandrews/meeting

We look forward to helping you make your first home a reality.

Lorne Andrews Principal Broker 

Back to Main Blog Page