# Purchase Plus Improvements — Rolling Renovation Costs Into Your Mortgage at Purchase

> How Canada's Purchase Plus Improvements mortgage works: lawyer holdback, reappraisal mechanics, CMHC premium tiers, and lender policy spread for fixer-upper buyers.

Category: Purchase
Last verified: 2026-04-20
Source: https://ratellow.com/scenarios/purchase-plus-improvements-mortgage-canada

## Who this is for
Salaried first-time buyers and move-up purchasers acquiring properties that require immediate renovation — typically targeting a fixer-upper priced below market to offset renovation costs, or buyers who want to modernize a dated home without a separate construction loan.

## Summary
Purchase Plus Improvements (PPI) is a CMHC-insured (and Sagen/Canada Guaranty-eligible) mortgage structure that allows borrowers to fold pre-approved renovation costs into a single mortgage at purchase — with the improvement amount held back by the solicitor and released only after a post-renovation appraisal confirms the work is complete. The qualifying LTV and insurance premium are calculated on the as-improved value, not the purchase price, which is the structural advantage that makes the product compelling for fixer-upper acquisitions. The mechanics are precise: lenders, insurers, and lawyers each play a defined role, and missteps in sequencing — particularly around contractor quotes and appraisal timing — are the most common failure points.

## Worked example
A salaried couple purchases a dated semi-detached in Hamilton for $620,000. They have $40,000 in savings and obtain two contractor quotes averaging $55,000 for a kitchen gut, bathroom update, and electrical panel upgrade. The lender orders an as-improved appraisal, which values the property post-renovation at $710,000. The mortgage is structured on the as-improved value of $710,000 less the $40,000 down payment, yielding a $670,000 insured mortgage — with $55,000 held back by the solicitor pending renovation completion.

- Purchase price: $620,000
- Approved improvement amount: $55,000
- As-improved appraised value: $710,000
- Insured mortgage amount: $670,000 (94.4% LTV on as-improved)
- CMHC premium (4.00% tier, >90% LTV): $26,800 added to mortgage

## Framework
### How the as-improved appraisal drives the structure
The entire PPI product rests on a single appraisal ordered before closing that values the property in its post-renovation state. The lender submits the purchase price, the improvement scope, and the contractor quotes to an approved appraiser who renders an as-improved value. The insured mortgage is then calculated as: **as-improved value × (1 − minimum down payment %)**, subject to the CMHC insured cap of $1.5M (effective December 2024). If the as-improved appraisal comes in below the purchase price plus improvement costs — a real risk on over-improved properties or in softening markets — the borrower must cover the gap from their own funds. The appraisal is the ceiling, not the sum of purchase price and quotes.

### The lawyer holdback and release mechanic
At closing, the full mortgage amount funds to the solicitor's trust account. The purchase price flows to the vendor immediately. The improvement portion — typically the exact contractor quote amount approved by the lender — is held in trust as a **lawyer holdback**. Once renovations are complete, the borrower requests a post-renovation inspection or appraisal (lender policy varies: some require a full reappraisal, others accept a statutory declaration plus photos, and a minority accept contractor invoices alone). Upon satisfactory confirmation, the solicitor releases the holdback to the borrower or directly to the contractor. The holdback period is typically 90–120 days; lenders will not extend indefinitely, and failure to complete renovations within the window can trigger a default notice on the holdback portion.

### CMHC, Sagen, and Canada Guaranty program mechanics
All three default insurers offer a PPI-equivalent product. CMHC's program requires that improvements be **non-structural and cosmetic in nature** for standard processing — kitchens, bathrooms, flooring, windows, roofing, HVAC, and electrical panels generally qualify. Structural additions (additions, foundation work, load-bearing changes) typically require a construction mortgage instead. **Premium tiers** apply to the full insured amount (purchase + improvements): LTV 80.01–85% attracts a 2.80% premium; 85.01–90% attracts 3.10%; 90.01–95% attracts 4.00%. The December 2024 reform raised the insured cap to $1.5M, making PPI viable in higher-cost markets where it previously was not. Minimum down payment is 5% on the first $500,000 of as-improved value and 10% on the portion between $500,001 and $1.5M.

### Lender policy spread — where programs diverge
Roughly two-thirds of Schedule I banks and most monolines offer PPI, but policies diverge materially on three dimensions. **Maximum improvement amount:** most lenders cap improvements at the lesser of 10–20% of the purchase price or a fixed dollar ceiling ($40,000–$100,000 depending on lender); a minority allow up to the full as-improved appraisal gap. **Number of quotes required:** most require two independent contractor quotes; some accept one for amounts under $15,000. **Holdback release standard:** some lenders require a full reappraisal at the borrower's cost (~$400–$600); others accept a statutory declaration. Brokers with a wide lender panel can match the borrower's renovation scope to the lender whose policy fits — this is not a product where going direct to a single bank branch is optimal.

### Interaction with the stress test and GDS/TDS ratios
The qualifying mortgage amount under B-20 is the full PPI mortgage (purchase + improvements), stress-tested at the greater of the contract rate plus 200 bps or 5.25% (the current Mortgage Qualifying Rate floor as of 2026). At a 5.00–5.25% 5-year fixed contract rate, the stress-test rate is approximately 7.00–7.25%. GDS and TDS ratios are calculated on the full mortgage payment including the improvement amount — the holdback does not reduce the qualifying payment. Borrowers who are near the GDS/TDS ceiling (39%/44% for insured) should model the full mortgage payment, not just the purchase-price portion, before submitting an offer.

### Sequencing — the steps that must happen in order
The PPI structure is sequence-sensitive. The correct order is: **1.** Accepted offer with a financing condition. **2.** Obtain two contractor quotes for the approved scope. **3.** Submit quotes to lender with purchase documents. **4.** Lender orders as-improved appraisal. **5.** Lender issues commitment on as-improved value. **6.** Solicitor receives full mortgage funds at closing; holdback segregated. **7.** Renovations completed within lender's holdback window. **8.** Post-renovation confirmation submitted; holdback released. Attempting to start renovations before closing, or changing the renovation scope after the appraisal, will invalidate the holdback and may require a full re-underwrite. Contractors must be licensed and insured — lenders will not release holdbacks to unlicensed trades.

## Key considerations
- The as-improved appraisal is ordered at the borrower's expense (typically $400–$600) and is non-refundable if the deal falls through. Budget for this cost in your closing-cost estimate alongside land transfer tax and legal fees.
- Improvement scope must be finalized before the appraisal is ordered — changes after the fact require a new appraisal and a lender amendment, which can delay closing. Scope creep discovered during renovation does not automatically increase the holdback.
- In Ontario and BC, HST/GST applies to new construction but not to renovation labour on existing residential properties. Confirm with your contractor whether their quote is inclusive or exclusive of applicable taxes, as the lender's approved amount is fixed at the quoted figure.
- The holdback period (typically 90–120 days post-closing) is a hard deadline at most lenders. If supply-chain delays or contractor scheduling push renovations past the window, contact the lender immediately — extensions are possible but not guaranteed and may require a fee.
- PPI is not available for properties that require remediation (mould, asbestos, oil tank removal) as a condition of habitability. Those properties typically require a private or construction mortgage until the remediation is complete and the property is insurable.
- If the property is a condo, strata or condominium corporation approval may be required for certain improvements. Confirm with the corporation before finalizing the renovation scope, as lender approval does not substitute for strata consent.

## Common mistakes
- Submitting a single contractor quote when the lender requires two — the file stalls at underwriting and the financing condition deadline may lapse before a second quote is obtained.
- Treating the holdback as a renovation budget top-up rather than a fixed approved amount — any cost overrun above the holdback is the borrower's responsibility and cannot be added to the mortgage post-closing without a full refinance.
- Failing to stress-test GDS/TDS on the full PPI mortgage amount — borrowers who qualify on the purchase price alone sometimes find the improvement amount pushes them over the 44% TDS ceiling, requiring a reduced improvement scope or a larger down payment.
- Starting demolition or ordering materials before closing — lenders and insurers require the property to be in the same condition as appraised at the time of closing; pre-closing work can void the as-improved appraisal and trigger a lender refusal to fund.
- Selecting a contractor who is not licensed or insured — most lenders will not release the holdback to an unlicensed trade, leaving the borrower with completed work and no access to the holdback funds.
- Assuming the PPI structure works for structural additions — adding square footage, building a garage, or underpinning a foundation typically falls outside PPI eligibility and requires a construction mortgage with draw schedule, a materially different product.

## Action steps
1. Before making an offer on a fixer-upper, obtain a preliminary contractor walkthrough and a rough quote range — this tells you whether the improvement amount is within the lender's cap and whether the as-improved value is likely to support the structure.
2. Engage a broker with confirmed PPI experience across multiple lenders before submitting an offer, so the lender's holdback cap and release standard are known before you commit to a renovation scope.
3. Build the as-improved appraisal cost ($400–$600) and a second contractor quote fee into your pre-closing budget alongside standard closing costs — these are out-of-pocket before the mortgage funds.
4. Model your GDS and TDS ratios on the full PPI mortgage amount (purchase + improvements) at the stress-test rate of approximately 7.00–7.25% before finalizing the improvement scope.
5. Confirm with your solicitor that they are familiar with the lawyer holdback mechanic and have handled PPI files before — not all real estate lawyers have experience segregating and releasing holdback funds under lender instructions.
6. Once the holdback is in place, engage your contractor immediately and establish a completion timeline with buffer before the lender's holdback window closes — 90 days moves faster than most first-time buyers expect.

## Sources
- Mortgage Loan Insurance — Homeownership Products — https://www.cmhc-schl.gc.ca/professionals/project-funding-and-mortgage-financing/mortgage-loan-insurance/mortgage-loan-insurance-homeownership-programs
- Guideline B-20 — Residential Mortgage Underwriting Practices and Procedures — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/final-revised-guideline-b-20-residential-mortgage-underwriting-practices-procedures
- Mortgages — Government of Canada Financial Consumer Agency — https://www.fcac-acfc.gc.ca/Eng/financial-literacy/life-events/buying-home/Pages/mortgages.aspx