What You Need to Know About Buying A Second Home in Ontario
Whether you’re dreaming of your own little sunny vacation property, a cottage to escape to, or a home for a child who’s away at school, there are many reasons to consider buying a second property. But are you ready for such a big investment?
What Qualifies as a Second Home in Ontario?
There’s a difference between an investment property and a second home. A second home is a property that the owner or a family member will be living in it at least part of the time. It can be a weekday residence for someone who commutes, a cottage, or a vacation property. A second property does not usually generate income, although a multi-unit dwelling where the owner lives in one unit and rents the others is still considered an owner-occupied residence.
If the second property is not owner-occupied, then it will be considered an investment property. Investment properties have to meet different requirements to get a mortgage.
What is the Process for Buying a Second Home?
For the most part, the steps for buying a second property are the same as buying your first home. You will have to save for a down payment, acquire a mortgage, find the right home, have the property inspected and meet all the conditions of the purchase agreement. Getting a second mortgage can be a bit more challenging than getting your first mortgage though.
Can I Afford a Second Home?
If you are considering buying a second home, it’s important to have your finances in order. Aside from saving for a down payment, you should also pay off debt, as it may hinder your ability to obtain a second mortgage. You’ll have to show lenders that you can stay on top of all the expenses for your primary residence while also covering the cost of the second home. To ensure you are prepared for such a major investment, it’s wise to meet with a financial advisor to ensure you can truly afford it.
How Much Down Payment is Required for A Second Home?
As long as you will be living in the property, the down payment requirements for a second home remain the same as buying a first home. However, with second properties, the number of units on the property, and whether or not the owner will live there, can have an impact the size of the down payment.
Buildings that have five (or more) rental units are considered commercial property and will require a commercial mortgage. Depending on the location and your financial standing, lenders may require a down payment of 20% to 35% on a commercial property.
Can I Finance a Down Payment on a Second Property?
If you are having difficulty saving enough money for the down payment on a second property, it is possible to receive financing. There are different options available to finance a down payment on a second home, such as refinancing your current mortgage or taking out a home equity line of credit. Home equity is the difference between the current value of your home and the balance owing on your mortgage.
You may also be able to obtain a second mortgage on the first home. In most cases, you can access up to 80% of your home’s appraised value, minus the balance remaining on your original mortgage.
Do I Have the Resources to Maintain a Second Home?
Owning a home is a lot of work. Do you have time and financial resources to maintain a second property? Cleaning, repairs and upkeep can feel like a full-time job when you own a home. You’ll need a plan for how you will handle all these tasks at the second home. Can you afford to pay an extra set of utilities and property taxes on top of the second mortgage? What if major repairs were required on both properties?
Where Do I Start when Buying a Second Home?
Taking on an additional mortgage is a big financial decision and should not be done without careful research and planning. Buyers should discuss their options with their current lender and financial planner. You should also hire a real estate lawyer who can ensure your best interests are being looked after. And an experienced local real estate agent can help you find the right place in the right price range.
If you’re not sure where to begin, contact us today to get started. We can help you put together a team of trusted experts and help you find the perfect second home.