Second Homes & Vacation Properties

Second Homes &

Vacation Properties

Jackie Woodward // Mortgage Broker // TMG 780.433.8412 // [email protected]

Second Homes & Vacation Properties

The economy is improving and recreational property purchases seem to be on the rise. Low interest rates, employment confidence and a rising Canadian dollar

are what’s driving the interest to buy additional properties.

Before you go cottage shopping, let’s chat about mortgage financing as it’s a little different than

getting the mortgage for your primary residence.



These types of properties have been affected by the mortgage insurance rule changes so now is a great time to review

the basics of financing a vacation property or second home.



Definition Depending on the lender, these types of properties can be

referred to as vacation homes, second or secondary homes, or recreational properties, among a few others.

While the term might be different, they are all used to

describe a property that is not your primary residence and not a rental property, it’s somewhere in between.

If you’re buying a cottage, a home for a family member to

live in or a second home to live in while working away from home, they all fit into this middle area.



Definition The best way to determine what type of property you’re trying to finance is to speak to a mortgage

professional and they will determine how a lender will define your property for financing purposes and what

polices and guidelines your application will be reviewed under.



Qualifying The lender will require you to show you can qualify to purchase a second property while still owning your

principal residence.

They will be analyzing your credit application as they did when you purchased your residence to determine if you can carry 2 mortgages with a low likelihood of default.

You will be asked to provide property details, income

documents and downpayment confirmation.



Qualifying If you’re self-employed and trying to buy a

second home under a stated-income program, be prepared to provide a larger downpayment

than the required minimum.



Qualifying Mortgage qualifying is one of those grey areas

where it’s best to contact an experienced professional to get a straight answer on

whether you can get approved for a second home or not.



Downpayment The minimum downpayment to buy a second

home is 5% of the purchase price, providing you have verifiable income, downpayment from your

own resources and a strong credit history.

If you’re trying to buy with the minimum downpayment you will need to obtain mortgage default insurance through either Genworth or

Canada Guaranty.



Downpayment If you’re dealing with a lender that only works with CMHC for insurance, you will require at

least a 20% minimum downpayment.

The higher minimum is the result of the CMHC mortgage insurance rule changes that came

into effect on May 30th of this year.



Downpayment When you’re putting down a larger amount, there are more allowances for the source of the funds.

Speak to your favorite mortgage professional to locate a lender whose guidelines align with your

borrowing profile to find a financing match.



Documents When it comes to supporting documents

relating to income and credit, the requirements are the same as if you were

getting a mortgage on your primary residence.



Documents Your lender will be looking for paperwork to prove your income or self-employment status, a credit

pull will usually satisfy the repayment history requirements and downpayment documents will

vary depending on where you’re getting the funds from.

The documentation differences are noticeable

when confirming property details.



Documents Your potential lender will be looking to confirm the

usual details like condition and location of the property.

They may also require proof the property has year-round access and service hook-ups or if a water

potability test is required due to the property being on well water.



Documents Depending on how those results look, your mortgage professional will work to find a lender who likes the

property as much as you do.

If they’re not super keen on the home, they will be looking for added strength from the borrower to support the application for mortgage approval.



Purchasing a recreational property is a lot like getting a mortgage on your primary residence in that you can

usually get best rates, and the qualifying process is quite similar other than some extra property

requirements.

Just as you did your research before you bought your first home, the same due diligence should be used when buying a vacation property or second home.



Mortgage Questions? Let’s Chat! Phone: 780.433.8412 Email: [email protected] Visit: www.mortgagegirl.ca Follow @mortgagegirlca

Real Estate

Second Homes & Vacation Properties