Short answer
Because many improvement mortgages advance the purchase money at closing but retain the renovation portion until the approved work is finished and confirmed. The mortgage is not necessarily a contractor-payment account that advances every invoice as it arrives.
The client problem behind the question
The buyer expects the lender to fund the first contractor deposit, then discovers the money arrives only after completion.
What the official guidance establishes
CMHC Improvement provides flexible advancing options, but the approved lender controls its process, inspections and evidence. Construction lien holdbacks and contractor payment rights are separate legal matters.
Where the answer can change
Advance timing varies by lender and project size. Some construction facilities use progress draws; many smaller purchase-plus-improvement files use one holdback. Credit cards or unsecured loans taken after approval can change debt ratios and jeopardize funding.
A practical Ontario example
Illustration only: A $35,000 improvement holdback is approved. The contractor requests $15,000 upfront. If the buyer borrows that amount without approval, the new monthly debt can affect the mortgage before the holdback is released.
What to do before committing
Build an interim-cash schedule before committing to the work. Ask about deposits, draw stages, inspection requirements, lien holdbacks and whether family funds, savings or an approved credit facility can bridge the timing.
Questions Rajiv would ask
- What deadline, condition or closing problem must be solved?
- Which facts are confirmed by original documents and which are still assumptions?
- Which law, insurer rule or lender policy applies to this exact transaction?
- What happens to the cash requirement and monthly payment if the first option fails?
- What is the practical route back to lower-cost financing, if temporary financing is used?
Rajiv’s broker perspective
I would match the financing to the contractor schedule, not only to the finished value. The practical review includes how much cash is needed before each draw, whether permits and rent are supportable, and what happens if the project costs more or takes longer. A, alternative/B, MIC and private options can each work, but the exit and total cost must be clear before construction begins.
Related: Mortgage declined? Start here · Mortgage Knowledge Centre · Real Estate Centre · Updates & Rules Centre
Would a second opinion help before you commit?
Send Rajiv the property, deadline, financing concern and the documents already available. He can identify the missing questions, compare practical mortgage routes and explain the next step in plain language.