Purchase Plus Improvements in Ontario: Financing the Suite Into the Purchase

Most secondary suite conversations start about a year too late. Someone buys a house, spends every dollar they have on the down payment and closing costs, moves in, and then discovers that the basement they bought the place for is going to cost forty or fifty thousand dollars to turn into a legal unit. There is no equity to pull yet, the renovation gets postponed, and the rent that was supposed to carry the mortgage stays hypothetical. Purchase Plus Improvements is the product that exists specifically to stop that from happening. It lets you finance the renovation inside the purchase mortgage, at purchase mortgage terms, on day one. It is also the product most buyers in Ontario have either never heard of or badly misunderstand, and the misunderstanding usually costs them the deal.

What Purchase Plus Improvements actually is

A Purchase Plus Improvements mortgage (lenders and brokers usually just say PPI) adds the cost of planned renovations to your purchase mortgage, and qualifies the whole thing against the as-improved value of the property rather than the price you paid. If you buy at $700,000 and the appraiser agrees the finished basement suite brings the property to $760,000, the lender is underwriting against $760,000. The improvement money is part of your first mortgage, so it carries your mortgage rate and your amortization instead of a line of credit rate or, worse, a credit card.

Because the improvement amount sits inside an insured mortgage, it is available to buyers putting down less than 20%. That is the whole point. This is the one structure in the Canadian market that lets a buyer with limited cash finance a value-add renovation at the moment of purchase rather than waiting years to build up equity first.

The limits, and why they decide whether a suite fits

The improvement amount is capped, and the cap depends on which of the three mortgage default insurers backs your file. CMHC allows up to 10% of the as-improved value with no fixed dollar ceiling. Sagen and Canada Guaranty cap it at the lesser of 20% of as-improved value or $40,000. You do not usually get to pick your insurer, the lender does, but this difference matters enormously on a suite conversion.

Run the numbers on that $760,000 as-improved property. Under CMHC, 10% is $76,000 of improvement room. Under Sagen or Canada Guaranty, the 20% test gives you $152,000 but the $40,000 ceiling overrides it, so you get $40,000. Same house, same buyer, same renovation, and the available financing nearly doubles depending on which insurer the lender uses. On higher-priced Ontario properties the CMHC route is often the only one where a full legal suite conversion fits inside the program at all, which is a conversation worth having with your broker before you write the offer, not after.

Be realistic about the number on the other side of the equation. A proper legal basement suite in Ontario, with the egress windows, fire separation, ceiling height, and permits that make it legal rather than just finished, commonly runs past $40,000 and frequently past $75,000 depending on the starting condition of the space. PPI may cover the whole project, or it may cover a meaningful chunk of it. Both outcomes are useful. Going in assuming it covers everything is how people end up short partway through the build.

The holdback is the part that catches everyone

Here is the mechanic that surprises almost every first-time PPI borrower. The improvement money is not handed to you at closing. Your lawyer holds it in trust. You pay for the renovation out of your own pocket, or with a contractor who is willing to wait, and only after the work is done and verified does the lender instruct the lawyer to release the funds.

Verification typically means an appraiser or inspector returns to confirm the work matches the scope that was approved. Some lenders release everything in a single draw once the project is finished. Others will allow progress draws, often up to three, which helps considerably on a larger job. Whether progress draws are available is lender-specific and worth confirming before you commit to a contractor payment schedule.

Two consequences follow from this. First, you need bridge cash or a contractor comfortable invoicing on completion. If you are putting your last dollar into the down payment, PPI does not solve your cash flow problem, it just changes its shape. Second, you pay interest on the full mortgage balance from the day it funds, including the portion sitting in your lawyer's trust account doing nothing. On a $45,000 holdback that is real money every month until the funds release, which is a good reason to have the contractor lined up before closing rather than starting the search afterward.

Timelines and scope discipline

The work has to be finished inside a window set by the insurer, often around 90 days and up to 120 days depending on which one is on your file. That is not a lot of runway for a permitted suite conversion in an Ontario municipality where inspections are booked out. Confirm the deadline that applies to your specific approval and build the permit timeline backwards from it.

Scope discipline matters just as much. The lender approved a specific quote for specific work. If you submitted a quote for a basement suite and then decided partway through to redo the kitchen upstairs instead, the funds do not release. Improvements also have to be permanent in nature. Structural work, flooring, cabinetry, windows, electrical, plumbing, and HVAC all qualify. Appliances and furnishings generally do not. Get at least one detailed contractor quote before the financing condition expires, showing materials, labour, timeline, and the contractor's full details. Two quotes is better, both for the lender and for you.

Where PPI fits against the refinance route

Since January 2025 there has been an insured refinance program aimed directly at secondary suites, allowing qualifying homeowners to refinance up to 90% of the as-improved value, with the as-improved value under $2,000,000, for up to four units total, with amortization up to 30 years. It is a genuinely strong program and in most cases it gives you far more room than PPI does. We have written about how it works in more detail alongside the other CMHC programs for secondary suites in Ontario.

The catch is eligibility. That program requires you to already own the property and occupy one of the units. A buyer standing at the closing table does not qualify for it, because they do not own anything yet. This is the cleanest way to think about the two tools. PPI is the day one instrument, available at purchase, capped fairly tightly. The secondary suite refinance program is the tool you reach for once you own and occupy the home, with much more capacity but a waiting period attached. Buyers who understand both can sequence them: use PPI to get the suite started at purchase, then refinance later against the higher as-improved value once the unit is legal, occupied, and generating documented rent. If the timeline is not urgent, going straight to the refinance route after closing is often the better math.

Does the future rent help you qualify?

Partly, and this is where expectations need managing. Projected rent from a suite that does not exist yet is treated very differently from rent on a tenanted unit with a signed lease and a filing history. Lenders typically apply a substantial discount to projected rent, and how they apply it, as an offset against the housing costs or as an add-back to income, changes your ratios materially. The mechanics are worth understanding in full before you build an offer around them, which is covered in our piece on how rental income qualification actually works in Ontario. The short version is that a PPI file usually has to qualify largely on your own income, with the suite rent helping at the margin rather than carrying the deal.

How to actually run this

The sequence that works looks like this. Get pre-approved and raise PPI with your broker before you are shopping, so the insurer question and the improvement cap are known quantities rather than late surprises. When you find the property, get the contractor through it during the conditional period and get a real written quote, not a verbal estimate. Confirm with the municipality that a second unit is permitted at that address and what the permit process looks like, because a suite that cannot be made legal is a suite the lender will not fund and an appraiser will not value. Submit the quote with the application so the appraiser can assess as-improved value against a defined scope. Line up the cash or the contractor terms to cover the holdback period. Then close, build, get it inspected, and release.

Done in that order it is a clean, effective structure, and one of the few ways a buyer without significant cash reserves can create a rental unit in year one instead of year five. Done backwards, discovered after closing, it is a product you no longer qualify for. If you are looking at a property in Ontario with suite potential and want to know what actually fits, the ADU Financing Calculator is a reasonable place to pressure test the numbers, and a conversation before you write the offer is worth considerably more than one after.