Second Homes & Vacation Properties
What counts as a second home?
A second home refers to a real estate property that is owner-occupied meaning the owner will be living in the property at least part time or a family member will be living there. Maybe a son or daughter who is going to University or an elderly parent residing in the property. An apartment in the city, chalet on the ski hill or cabin on the lake would all be considered a second homes.
If the property is not occupied by the owner or immediate family member then it would be considered an investment property which changes the lenders rules on it. Investment properties have different requirements and rates for mortgages so it is important to ensure you are getting the right product for your purchase.
How to finance the purchase of a second home
You can purchase a second home with as little as 5% down. You have to qualify for the mortgage just as you would if you were purchasing a house for you to live in full time, it is the exact same process. The main rule of financing a second home is that you cannot rent it out, you can only do this if you were to put 20% down as an investment property.
Can you afford a second home?
Seeing if you can afford a second home is primarily based on your income levels. You will need a good amount of room in your budget to be able to debt service an additional property that doesn’t produce any income. Based on your application and the current market rates I will be able to take all of your information and determine was is in the affordable range for you. Once we’ve worked out how much you can afford I will shop around to find you the best rate.
What are the rules for buying a second home in Canada?
The main difference in purchasing a second is the down payment. If you are purchasing the home to use personally or for a family member to live in then you can purchase with as little as 5% down.
The rules for buying a second home are very similar to those of your first mortgage. Qualifying for a second, third, fourth, etc. home is the exact same as applying for your first mortgage.
What do lenders look for to approve a second home property?
The process of applying for a mortgage on a second home is very similar to an owner-occupied home. The difficulty that can arise from a second home is that it is typically a cabin, lake property, or located in a more rural area. So, what exactly do lenders look at when considering lending on a second home?
- Location and proximity to a major market
- The property must be marketable
- The property has access to safe and consistent water supplies
- Ideally the property is accessible year round
- The property has a good road to access (preferably paved)
The lenders look at these factors as second properties can be risky to lend on as they’re not homeowner’s primary residences. Similar to an investment property they want to guarantee it can be afforded in the homeowner’s budget.
What should I consider before purchasing a second home?
Purchasing a second home is a big commitment and requires quite a bit of consideration before making the commitment. Investing in real estate can be one of the safest places for your money to go but with a second home you need to remember you will not be earning any regular income off the property. Before purchasing, consider the following:
- Find a good area to purchase in
- Consider how the new mortgage payments will fit your budget
- Think about co-buying a place with someone to split costs (ex. Family lake place)
- Calculate the costs (ex. Closing costs, down payments, etc.)
- Determine if you will need to do any upgrades to the property
- Figure out how much time you will be able to spend at the property
Second homes can be a great option, especially if they are somewhere you can get good use out of them. Ensuring that you have the available funds to not only purchase but upkeep and maintain the property is the best way to purchase stress free.
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