What Is a Purchase Plus Improvements Mortgage Solution?
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Purchasing a home that requires renovations can be both complex and taxing financially, especially considering additional costs. Fortunately, Canada’s mortgage insurers offer purchase plus improvements programs through many NHA-approved lenders, such as nesto, as a mortgage solution that combines the purchase price and renovation costs into one convenient mortgage. This program enables homebuyers to finance necessary upgrades immediately after purchase, helping them renovate before moving in and enhancing the property’s value and living experience.
Key Takeaways
- Combine your home’s purchase price and renovation costs into a single mortgage, simplifying mortgage payments and financial management.
- Renovations begin right after closing, allowing you to tailor your new home immediately to your preferences.
- Strategic improvements can boost your home’s market value, allowing you to maximize your borrowing capacity and capitalize on long-term appreciation.
What Is a Purchase Plus Improvements Mortgage?
A purchase plus improvements mortgage lets you combine the cost of buying a home with the funds needed for renovations, all within one mortgage. Often referred to as the PPI program, this type of financing covers a variety of upgrades, such as new flooring, kitchen remodels, or structural repairs, based on the property’s as-improved value—the estimated market value of the home after the renovations are complete. Whether it’s minor cosmetic updates or significant structural work, this program streamlines the process of upgrading your home while managing costs effectively. As PPI is an insured purchase solution, you’ll benefit from nesto’s lowest mortgage rates.
Eligible Types of Renovations
This mortgage solution covers a wide range of renovation types to suit different needs, including:
Cosmetic Upgrades: Painting, replacing countertops, upgrading appliances, or installing new flooring.
Structural Renovations: Adding rooms, fixing foundations, or altering the home’s layout.
Energy-Efficient Improvements: Energy-efficient upgrades like improved insulation or solar panels can also qualify under specific programs, such as CMHC Improvement, for eco-conscious buyers.
Down Payment Requirements
The required downpayment is calculated based on the property’s “as-improved value,” including the renovation cost. The minimum down payment for more minor upgrades is typically 5% of the total cost. If your planned improvements exceed $20,000, you must show sufficient liquidity, such as savings, equal to at least 15% of the renovation cost in addition to your closing costs. This ensures you have the means to finance the project initially while waiting for the funds being held back (holdback funds) to be reimbursed.
Flexibility Across Mortgage Insurers
Each mortgage insurance provider offers unique features and benefits through their version of the purchase plus improvements program:
Canada Guaranty Purchase Advantage Plus is versatile. It allows cosmetic and structural renovations and offers improvement coverage up to 20% of the as-improved value or $40,000. Examples include finishing basements or reconfiguring layouts.
CMHC Improvement focuses on energy-efficient improvements, making it ideal for homebuyers seeking green renovations. With a cap of 10% of the as-improved value, it is particularly suited for higher-priced homes.
Sagen Purchase Plus Improvements provides broad eligibility for cosmetic and structural upgrades, covering up to 20% of the as-improved value, similar to Canada Guaranty. Sagen’s purchase plus improvements calculator shows how a purchase with improvements will impact your premium, total mortgage amount, and mortgage payments.
How It Works
- Find Your Home: Begin house hunting with a vision for your dream property. Identify any renovations required to make the space your own, whether a kitchen remodel or structural upgrade.
- Speak with a Mortgage Professional: Consult with a mortgage professional to ensure the purchase plus improvements mortgage is the right product. They will guide you through the entire process, from approval to reimbursement.
- Get an Appraisal Report: Submit detailed renovation quotes from licensed contractors to determine the home’s as-improved value. This valuation will help calculate your mortgage affordability. For renovation projects exceeding $20,000, you’ll need to demonstrate that you have at least 15% of the renovation cost in liquid savings in addition to your closing costs.
- Plan Your Renovation Timeline: Organize your renovations and adhere to the completion deadlines. Projects with a total cost under $40,000 must typically be completed within six months, while those exceeding $40,000 may allow up to one year for completion.
- Fund Disbursement: Once renovations are complete, submit proof of work (such as receipts or inspection reports) to your lender. The holdback funds in your mortgage will then be released as reimbursement for your renovation expenses.
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Comparison of Purchase Plus Improvement (PPI) Programs Across Mortgage Insurers
| Canada Guaranty | CMHC | Sagen | |
|---|---|---|---|
| Program Name | Canada Guaranty Purchase Advantage Plus | CMHC Improvement | Sagen Purchase Plus Improvements |
| Minimum Down Payment | 5% | 5% | 5% |
| GDS/TDS | 39% / 44% | 39% / 44% | 39% / 44% |
| Mortgage Security | First mortgage | First mortgage | First mortgage |
| Maximum Loan-to-Value (LTV) | 95% for 1-2 units 90% for 3-4 units |
95% for 1-2 units 90% for 3-4 units |
95% for 1-2 units 90% for 3-4 units |
| Maximum Amortization | 25 years | 25 years | 25 years |
| Maximum Improved Home Value | Cannot exceed $1 million | Cannot exceed $1 million | Cannot exceed $1 million |
| Minimum Credit Score (FICO) | 680 (LTV equal or more than 95%) 600 (LTV 80 or less) |
680 (LTV equal or more than 95%) 600 (LTV 80 or less) |
680 (LTV equal or more than 95%) 600 (LTV 80 or less) |
| Premium | Varies based on LTV and purchase price | Varies based on LTV and purchase price | Varies based on LTV and purchase price |
| Eligibility | Purchase transactions only | Purchase transactions only | Purchase transactions only |
| Eligible Properties | Max. 95% LTV 1 to 2 units, 1 unit owner-occupied. Max. 90% LTV 3 to 4 units, 1 unit owner-occupied. |
1-4 units 1 unit must be owner-occupied |
1-4 units 1 unit must be owner-occupied |
| Improvement Cost Coverage | Up to 20% of the as-improved value | Up to 10% of the as-improved value | Up to 20% of the as-improved value |
| Completion Time for Improvements | 90 days | 120 days | 90 days |
| Eligible Improvements | Cosmetic and structural renovations | Repairs, renovations, and energy-efficient upgrades | Cosmetic and structural renovations |
| Maximum Improvement Amount | Up to 20% of the property’s value after renovations OR $40,000 | Up to 10% of the property’s value after renovations | Up to 20% of the property’s value after renovations |
| Reimbursement Process | Requires appraisal and holdback funds | Requires appraisal and holdback funds | Requires appraisal and holdback funds |
Frequently Asked Questions (FAQ) on Purchase Plus Improvement (PPI) Mortgage Solutions
What kinds of renovations can I include in my mortgage?
Both cosmetic and structural renovations can be included. Cosmetic upgrades cover items like countertops, flooring, and painting, while structural renovations may involve fixing a roof, reworking a layout, or expanding the home’s square footage. Under CMHC Improvement, energy-efficient improvements like installing solar panels or upgrading insulation are also eligible.
How much of a down payment will I need?
Your downpayment is based on the home’s total cost, including the planned renovations. For smaller projects, a minimum of 5% is required. If renovations exceed $20,000, you must show liquid assets equal to at least 15% of the renovation costs to secure financing for your dream home.
How long do I have to finish my renovations?
Renovation timelines vary. Projects under $40,000 must typically be completed within 90 days (Canada Guaranty) or 120 days (CMHC). Depending on lender policies such as nesto’s PPI program, more extensive renovations exceeding $40,000 may take up to one year.
How is the as-improved value calculated?
The as-improved value represents the property’s market value after renovations. For Canada Guaranty and Sagen, this may involve dollar caps like $40,000 or 20% of the home’s value, favouring smaller or more affordable homes. CMHC’s calculation is percentage-based, which works well for expensive properties where a lower percentage can still be a more significant dollar amount
What documentation is required for reimbursement?
Most lenders require detailed renovation quotes, a final appraisal of the completed work, and receipts or proof of payment to contractors. Funds are typically held back until all documentation is submitted and approved.
Final Thoughts
The purchase plus improvements (PPI) programs are an excellent solution for homebuyers looking to finance their dream home while keeping finances manageable. Whether you’re planning cosmetic changes, structural upgrades, or eco-friendly improvements, this program integrates everything into one mortgage loan, making the process more efficient. Each provider, Canada Guaranty Purchase Advantage Plus, CMHC Improvement, and Sagen Purchase Plus Improvements, offers unique benefits, so choosing one that aligns with your goals is essential.
Contact nesto mortgage experts today to explore your options and take the next step toward creating your dream home.
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