You spot a house in the right neighbourhood, with great bones and a price that catches your attention, but once you step inside, it is clear the place needs serious work. For buyers, that kind of home can be an opportunity to get into an area they like and create something that suits their needs. The bigger question is often how to cover the cost of both the purchase and the renovations. Renovation mortgage financing gives buyers a way to include eligible renovation costs in the purchase, which can make a fixer-upper easier to take on.
Key Takeaways
- A home that needs work is not always out of reach. With the right home renovation financing, buyers may be able to roll eligible renovation costs into the purchase instead of paying for everything upfront.
- There is more than one way to pay for renovations. A purchase plus improvement mortgage is one option, but refinancing, a HELOC, or smaller borrowing tools may also make sense depending on the project.
- Some upgrades are easier to finance than others. Projects like kitchens, bathrooms, windows, roofing, and accessibility improvements tend to be easier to support than highly customized upgrades, especially when home renovation financing is tied to value-added work.
- Some of the cost may be offset. Tax credits and energy-efficiency incentives may help reduce what you end up paying, depending on the type of renovation.
What Is Renovation Mortgage Financing?
Renovation mortgage financing is a way to pay for home improvements using mortgage-based borrowing instead of covering the full cost upfront. For buyers, this can mean adding approved renovation costs to the mortgage at the time of purchase. For homeowners, it can also include refinancing an existing mortgage or using a HELOC to fund updates over time. Instead of relying only on savings or higher-interest borrowing, these options can make renovation costs easier to manage. A REMAX agent can help identify homes with potential and point buyers toward improvements that are more likely to add value.
Common Ways to Finance a Renovation
Purchase Plus Improvements
For buyers, a purchase plus improvement mortgage is one of the most common ways to finance renovations from the start. This option lets eligible borrowers roll approved renovation costs into the mortgage at the time of purchase instead of arranging separate financing after closing. You’ll need to provide detailed contractor quotes before closing, and the lender will assess the home based in part on its expected value after the work is complete. The purchase plus improvement program funds are typically held back and released once the work is finished and verified, although larger projects may sometimes involve staged payouts.
Refinancing or a Home Equity Loan
If you already own your home, refinancing or taking out a home equity loan can let you tap into built-up equity and use those funds for renovations. The amount you can access depends on your home’s appraised value, the balance remaining on your mortgage, and lender rules, but this route can work well for larger projects where smaller borrowing options may not be enough. The tradeoff is that refinancing may come with legal fees, appraisal costs, and possible prepayment penalties if you’re breaking your current mortgage early.
Using a HELOC
A Home Equity Line of Credit, or HELOC, can be a strong fit for homeowners planning renovations in phases. Instead of receiving one lump sum, you can draw only what you need as the project moves forward, which can help with cash flow and reduce how much interest you pay at any given time. Because a HELOC is secured against your home, rates are often lower than unsecured borrowing options, making it a flexible choice for ongoing or longer-term work.
Cash, Credit Cards, or Personal Financing for Smaller Projects
Not every renovation needs mortgage-based financing. For smaller upgrades like paint, lighting, hardware, or minor fixture changes, using cash, a personal line of credit, a personal loan, or a credit card may be more practical. This can work best when the budget is modest, and you have a clear plan to pay the balance off quickly. In some cases, bathroom renovation financing may also fall into this category if the scope is fairly limited.
Grants, Credits, and Incentives Worth Knowing
Multigenerational Home Renovation Tax Credit
If you’re building a secondary suite for a senior or an adult family member who qualifies for the disability tax credit, you may be eligible for the Multigenerational Home Renovation Tax Credit. The current federal credit allows eligible claimants to claim up to $50,000 in qualifying expenses, worth 14.5% of those costs, for a maximum credit of $7,250.
Home Accessibility Tax Credit
If your renovation is focused on making a home safer or more accessible for a senior or a person with a disability, the Home Accessibility Tax Credit may help reduce costs. Eligible expenses can include permanent improvements such as accessibility-related bathroom upgrades, ramps, grab bars, and handrails, and qualifying individuals can claim up to $20,000 in eligible expenses per year, which translates to a maximum federal credit of $3,000.
Energy-Efficiency Incentives
If your project includes eligible energy-efficiency upgrades, it may be worth checking whether it qualifies for CMHC eco-related incentives or other federal, provincial, or utility-based programs. For renovation projects, CMHC Eco Improvement is the relevant path for borrowers with CMHC-insured financing who spend at least $20,000 on eligible energy-efficiency upgrades to an existing home, while Eco Plus remains the broader CMHC program family. Because these programs can change over time, it is worth confirming current eligibility before you finalize your renovation budget.
Frequently Asked Questions About Home Renovation Financing
Do I need to tell my home insurance provider before renovations begin?
Yes. Before work starts, it’s a good idea to notify your insurer, since renovations can affect your home’s risk profile, replacement value, and coverage needs. This is important for larger projects, structural work, or renovations that leave the home partially unoccupied during construction.
What renovations are lenders most likely to approve?
Lenders are usually more comfortable with renovations that are permanent, clearly scoped, and likely to support the home’s value. Projects such as kitchen and bathroom updates, new flooring, roofing, windows, and accessibility improvements are often easier to support than highly customized features or luxury upgrades that may not appeal to future buyers. A REMAX agent can help buyers identify which upgrades are more likely to strengthen resale value and which ones may cost more than they return. For example, bathroom renovation financing is often easier to justify when the project fixes worn finishes, improves layout, or brings an older bathroom up to date.
How quickly do renovations need to be completed?
There is no universal renovation deadline. Timelines vary by lender and program. Some improvement-financing products require the work to be completed within 120 days of the mortgage advance. Inspections or proof of completion may also be required before funds are released. Because these requirements can differ from one lender or insurer to another, it is important to confirm the exact timeline before you close.
Thinking about buying a home that needs work? A REMAX agent can help you assess the property’s potential, identify improvements that add value, and connect you with reliable professionals along the way.
