Buying a Fixer-Upper in Ontario with a PPI Mortgage

Have you found the perfect home in a great Ontario neighbourhood, but it needs a new kitchen or a finished basement? You're probably wondering how you can possibly afford both the house and the tens of thousands of dollars in renovations.

That's where the Purchase Plus Improvements (PPI) mortgage comes in.

It’s a special feature that lets you roll the cost of the home and the planned renovations into a single, simple mortgage payment right from day one. As mortgage brokers, this is one of the best tools we use to help our clients build their dream home without the financial stress. This guide will show you exactly how it works, step-by-step.

What is a Purchase Plus Improvements Mortgage?

First things first, a PPI isn't some strange, separate loan. Think of it as a feature or an "expansion pack" you add to your main mortgage. It’s designed for one specific purpose: to help you buy a home and finance its renovations at the same time, avoiding the need for expensive secondary loans like credit cards or unsecured lines of credit.

The Big Idea: Borrowing Based on Future Value

The magic of the PPI program is that it lets you borrow against the future, "as-completed" value of your home. Lenders understand that thoughtful renovations increase a property's worth. Therefore, they are willing to lend you money based on what the home will be worth after the work is done. This is a crucial concept. It means your borrowing power isn't limited by the home's current, dated condition.

Here's a simple example:

You find a house for sale in Markham for $900,000.

You get quotes from a contractor for $80,000 to build your dream kitchen and finish the basement.

The lender, with the help of an appraiser, will assess the future value of the home as $980,000.

Your mortgage loan will be based on that higher future value, meaning you get the money for the renovations included in your mortgage from the very beginning.

How the Renovation Money is Handled

To ensure the renovation money is used for its intended purpose, you don't get it as cash on closing day. Instead, when you close on the home, your lawyer will be given the renovation funds to hold in a trust account. You only get access to this money after you've completed the work and it has been verified by an inspector. This system protects you from being left with an unfinished project and protects the lender by ensuring their investment is secure in a property that has actually increased in value.

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The PPI Process: A Broker's Step-by-Step Guide

A PPI mortgage has a few extra steps compared to a standard purchase, but they're straightforward when you know what to expect. Here’s how we guide you through it, from start to finish.

Step 1: The Strategic Pre-Approval

Before you do anything else, we get you pre-approved. This is critical because we need to determine your total budget for both the house and the renovations. We'll help you estimate a realistic renovation amount you can comfortably afford within your total mortgage payment, preventing any surprises down the line.

Step 2: Getting Detailed Contractor Quotes

Once you've found a home you want to make an offer on, you'll need to get detailed, written quotes. This is the most important piece of paperwork. Lenders need to see a professional quote that includes the contractor's business name, address, GST/HST number, a clear and itemized list of the work to be done, and its specific costs. Vague estimates will be rejected.

Step 3: Making a Smart Offer

With your pre-approval and quotes ready, you can confidently make an offer. We’ll work with your realtor to include a crucial "condition of financing" in the offer. This condition gives us enough time—typically 10-15 business days—to get the lender's final approval on both you and the renovation project.

Step 4: Submitting for Lender Approval

This is where we package everything for the lender. We’ll submit your financial information, the accepted offer for the house, and the detailed contractor quotes. We make a strong case to the underwriter, showing them that the planned renovations are smart upgrades that will increase the home's value.

Step 5: The 'As-Completed' Appraisal

Next, the lender will order an appraisal. The appraiser will determine two values: the home's value "as-is" today, and its estimated market value "as-completed" with your proposed renovations. This second, higher value is what your final mortgage amount will be based on. An experienced broker can often provide the appraiser with the quotes to help inform their final valuation.

Step 6: Getting Your Keys on Closing Day

On closing day, everything comes together. The lender provides the funds to purchase the home, and you get your keys! The renovation funds are then securely transferred to your lawyer’s trust account.

Step 7: Completing the Renovations

Now the fun part begins! You typically have 90 to 180 days to complete the renovations exactly as described in the quotes you submitted. Once the last nail is hammered in, we schedule a final inspection. An inspector will visit the property to confirm the work is 100% complete. Once they give the okay, the lender instructs your lawyer to release the renovation funds to you, so you can pay your contractors.

Key Requirements for a PPI Mortgage

Your Down Payment: One of the best parts of a PPI mortgage is that your down payment is calculated on the home's purchase price before you add the renovation costs. On a $900,000 home, the minimum down payment is $65,000, regardless of the renovation budget.

Mortgage Default Insurance: Since this is a low down payment program, your mortgage will need to be insured by CMHC, Sagen, or Canada Guaranty. The insurance premium is simply added to your mortgage total.

Eligible Renovations: Lenders want to see that the upgrades will add real value. Finishing a basement, updating a kitchen or bathroom, replacing windows, or putting on a new roof are all excellent examples.

Common Pitfalls to Avoid

Underestimating Costs: Always get multiple quotes and add a personal contingency fund of 10-15% for unexpected issues. The PPI loan will not cover cost overruns.

Choosing the Wrong Contractor: Don't just go with the cheapest quote. Lenders need to see a professional, registered business. A bad contractor can jeopardize the entire project.

A Short Financing Condition: Rushing the financing condition can be disastrous. A PPI application takes longer than a standard one, so ensure your offer allows enough time.

Common Questions about the PPI Program

How much can I borrow for renovations?

For an insured mortgage, the renovation budget is typically capped at $40,000 or 10% of the as-completed value, whichever is less. We can help you figure out the exact amount for your situation.

What if my renovations go over budget?

The PPI program does not advance extra funds. This is why having a separate contingency fund in your savings is a non-negotiable part of our advice to clients.

Can I do the renovations myself (DIY)?

In almost all cases, lenders will not approve "DIY" renovations for a PPI mortgage. They require the work to be done by a licensed and insured contractor to ensure it's completed on time and to a professional standard.

Can I change my renovation plans midway through?

No. The loan is approved based on the specific quotes submitted. Any deviation from that plan can cause major issues with the final release of funds.

What if the seller won't accept a long financing condition?

In a hot market, this can be a challenge. This is where a strong pre-approval from a broker helps. It shows the seller you are a serious, well-qualified buyer, which can make them more agreeable to the necessary timeline.

Why a Broker is Your Best Friend for a PPI Mortgage

Navigating this process with a big bank can be tough. A mortgage broker is your expert guide and advocate.

We Know the Right Lenders: We have access to dozens of lenders and know exactly which ones are experienced and efficient with PPI applications. We save you time and frustration by going to the right place first.

We Package Your Deal for Success: We know how to present your application and quotes to underwriters to highlight the strengths and anticipate their questions. For example, we recently helped a client in Vaughan whose contractor quote was slightly unconventional. By adding a cover letter explaining the long-term value, we got the deal approved where a bank may have simply said no.

We Quarterback Your Team: A PPI loan requires seamless communication between your realtor, lawyer, appraiser, and contractor. We act as the central point of contact, ensuring everyone has what they need to keep the process moving forward and on schedule.

Buying a fixer-upper is a fantastic strategy to build wealth and create a home tailored just for you. The Purchase Plus Improvements program makes it financially possible.

If you’re ready to explore how you can finance your own renovation project, the first step is a simple conversation. Contact our brokerage today, and let's turn that house with potential into your perfect Ontario home.

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