Harpreet’s perspective
Real questions. Real properties. Real numbers.
You find two houses. House A is completely renovated: beautiful kitchen, new bathrooms, perfect flooring, and a price tag that knows exactly how beautiful it is. House B is cheaper. The kitchen looks like it last had an exciting year in 1997. But you see the potential.
What if you could buy House B and include eligible renovation costs as part of the mortgage financing? That's where a Purchase Plus Improvements mortgage can become worth discussing.
How Does Purchase Plus Improvements Generally Work?
Purchase Plus Improvements programs can potentially allow eligible renovation costs to be considered as part of the mortgage transaction, subject to lender and insurer requirements where applicable. The exact program, limits, eligible improvements, documentation and process depend on the lender and transaction.
Typically, the renovations and costs need to be established and approved as part of the financing process. The important thing to understand is that this isn't usually: ‘Here's a giant cheque. Have fun at Home Depot.’ There is a process.
Let's Use a Simple Example
Suppose you find a home for a $500,000 purchase price. You want to complete a $20,000 kitchen renovation, $10,000 flooring, and $10,000 in bathroom updates. Total improvements: $40,000.
For illustration, we now have a project involving a $500,000 purchase price plus $40,000 planned improvements, for a $540,000 total purchase-plus-improvement amount for analysis. The actual mortgage amount, required down payment, insurer treatment where applicable and eligible renovation amount will depend on the specific program and approval.
Before proceeding, we would establish the renovation plan and supporting cost estimates as required by the lender.
What Happens to the Renovation Money?
Depending on the lender/program, the improvement funds may not simply be advanced to you on closing for unrestricted use. There can be requirements around completing the approved improvements, inspections or confirmation of completion before renovation funds are released.
This means you need to understand how contractors and renovation expenses will be managed during the project. Cash-flow planning matters.
Start With the Numbers
Eligible improvements depend on the lender and applicable program. The key concept is that we're financing improvements intended for the property—not buying a new truck because apparently the renovation requires one. Before you write the offer, tell me what you're planning.
Kitchen? Bathrooms? Flooring? Windows? Basement work? Other significant improvements? I'll help determine what financing paths may be available and what documentation may be required.
Why I Like This Strategy
Sometimes buyers are competing heavily for finished homes while overlooking properties that need work. If you're willing to renovate, you may be able to buy a property that better fits your budget and create the home you actually want. For investors or buyers thinking strategically, renovations may also potentially improve functionality, rental potential or property value.
But don't assume: ‘I spend $40,000, therefore the property becomes worth exactly $40,000 more.’ Real estate doesn't work like a receipt.
The Biggest Mistake: Starting With the Renovation Instead of the Numbers
I want to know: What's the purchase price? What's the renovation budget? What's your available down payment? What improvements are actually needed? How will the renovation be completed? What will the financing look like? And does the entire project still make sense?
Purchase Plus Improvements can be a great tool. But like every mortgage strategy, it works best when the mortgage, property and renovation plan are designed together. So if you find the ugly house with the perfect location, don't immediately reject it because the kitchen is terrible. Send it to me. Sometimes the ugly kitchen is exactly where the opportunity starts.