Costs
CMHC-Insured Renovation Financing for a Small Home: How It Works
CMHC Improvement and CMHC Refinance let some borrowers fold renovation costs into an insured mortgage. This guide sets out the limits, the advances and what a small home owner must show.
What to take away
- CMHC does not lend money. It insures the mortgage that an approved lender makes, and the two products that matter for renovations are CMHC Improvement (buy an existing home and renovate it) and CMHC Refinance (owner-occupied refinance loans).
- CMHC Improvement lends on the as-improved valuethe lending value is the lower of the as-improved value, or the as-is value plus the cost of the improvements.
- Improvement costs of 10 percent or less of the as-improved value are advanced once. Costs above 10 percent are paid in progress advances.
- Limits from CMHC's own sheets include a minimum credit score of 600 for at least one borrower, a gross debt service ratio of 39 percent and total debt service of 44 percent, and a stress rate of the greater of the contract rate plus 2 percentage points or 5.25 percent.
- CMHC Eco Improvement pays a 25 percent partial premium refund to borrowers who invest at least $20,000 in energy efficiency improvements.
This article reflects CMHC's published materials, dated August 2025 on the downloadable sheets. Mortgage rules change, so ask your lender for the current CMHC terms before you rely on a number.
Why a small home needs a different question
A small home often has a small renovation budget, but the structure of the loan does not shrink with it. The lender is still advancing against a property value, the insurer still wants documents, and the buyer still has to qualify. The useful question is whether the renovation is a purchase-with-improvements deal, a refinance of a home you already own, or a separate loan altogether.
CMHC's homeowner programs page lists the products. CMHC Purchase allows a minimum down payment of 5 percent. CMHC Improvement provides financing options for new construction and home improvements. CMHC Refinance is described there as helping homeowners fund building a secondary suite. CMHC Eco Improvement offers a partial premium refund on energy-efficient upgrades. A small-room project fits one of these only if its size and ownership situation match.
CMHC Improvement: buy first, renovate with the same mortgage
CMHC Improvement allows the purchase of an existing residential property with improvements, and new construction financing. For a buyer eyeing a small home that needs work, the feature is that the loan is sized on the finished value.
The property is assessed two ways. The as-is value is today's market value, and the as-improved value is the value after the work. The as-improved value sets the loan-to-value ratio and the down payment. The lending value is the lower of the as-improved value, or the as-is value plus the cost of the improvements.
Lenders need documents to support the as-improved value. CMHC's page gives improvement lists and cost estimates, plans for major renovations and a building permit as examples. A permit trail therefore does double duty: it satisfies the municipality and supports the loan. Our notes on Toronto condo kitchen renovation permits show how long that side can take.
How the money is advanced
CMHC sorts the advance by size:
- Single advance.For improvement costs of 10 percent or less of the as-improved value, the money is advanced in one go.
- Progress advances.For new construction or improvement costs above 10 percent of the as-improved value, funds are advanced in stages. Under Full Service, CMHC validates up to four consecutive advances at no cost. Under Basic Service, the lender validates advances without pre-approval from CMHC.
As an illustration, suppose a small home has an as-improved value of $400,000. Ten percent is $40,000, so a $30,000 renovation would use a single advance and a $55,000 one would use progress advances. The example numbers are mine, and the 10 percent rule is CMHC's.
The sheets do not address holdback timing, contractor payment terms or completion deadlines, so ask the lender how and when each advance is released.
What a borrower must show
From the CMHC Improvement fact sheet and Quick Reference:
| Item | Homeowner loan (owner-occupied) |
|---|---|
| Loan-to-value | 1 to 2 units: up to 95 percent; 3 to 4 units: up to 90 percent |
| Minimum equity | 1 to 2 units: 5 percent of the first $500,000 of lending value and 10 percent of the rest; 3 to 4 units: 10 percent |
| Maximum price or lending value | Below $1,000,000 if LTV is 80 percent or less; below $1,500,000 if LTV is above 80 percent |
| Credit score | At least one borrower or guarantor at 600 or higher |
| Debt service | GDS 39 percent, TDS 44 percent |
| Rate used for the ratios | Greater of contract rate plus 2 percent, or 5.25 percent |
| Amortization | 25 years, or 30 years if LTV is above 80 percent and the borrower is a first-time buyer or buying a newly built home |
The property must be in Canada, suitable and available for full-time, year-round occupancy and have year-round access. CMHC's page also says condominium construction financing is not permitted. The down payment can come from savings, the sale of a property or a non-repayable gift from a relative.
CMHC Refinance: borrowing against a home you already own
For owners, the relevant column of the Quick Reference is Homeowner Refinance Loans, for owner-occupied property. It allows up to four units including the existing unit or units, a loan-to-value ratio of up to 90 percent, and a maximum lending value or as-improved value below $2,000,000. The maximum amortization is 30 years. The same credit score, debt service and rate rules apply as for purchase loans.
CMHC's programs page describes this product as helping homeowners fund the building of a secondary suite. That is the headline use, and a small home with a basement or laneway plan is the classic fit. The permitting side of such projects is covered in Alberta secondary suite rules and Calgary basement suite regulations. The sheets reviewed here do not list which other renovation purposes are accepted, so ask the lender whether your project qualifies.
Eco Improvement: the premium refund
CMHC Eco Improvement offers a partial premium refund of 25 percent directly to borrowers who invest a minimum of $20,000 on energy efficiency improvements. For a small home, the $20,000 floor is the key number, because a modest single-room refresh is unlikely to reach it. The details of the qualifying work and the documents needed sit with CMHC and your lender, so check them before you sign a contract.
Where these products stop
CMHC mortgage loan insurance applies to mortgages made by approved lenders, so these products suit a purchase or refinance, not a stand-alone loan for a small cosmetic job. Three limits follow from the figures above:
- The ratios apply to the whole mortgage.GDS and TDS count the new total debt at the stress rate, so a renovation can push you out of qualification.
- Value drives the loan.If the as-improved value does not support the amount, the lender will not advance it.
- The paperwork is real.You need cost estimates, plans and permits before the lender commits, so the budget work comes first. Our guides to setting a realistic budget for a small room renovation and to hidden expenses in small room renovation costs are where to start.
Questions to put to a lender
- Is the property eligible under CMHC Improvement or Refinance, and which product fits?
- What documents support the as-improved value, and who orders the appraisal?
- Will the work be advanced once or in progress advances, and at what points?
- What is the stress-test rate in my case, and what do the GDS and TDS come to?
- Does the project reach the Eco Improvement threshold, and what evidence is needed?
