How to buy a second home?
Are you looking to buy a second home or a vacation property? If so, you can read on and we can address your questions below.
If you are looking to buy a second home as an investment property to rent out, or if you are looking to rent out your home that you are currently living in and move into a new home, please follow this link to the How to buy a Second Property question, where we’ve answered this for you and laid out your options. If you feel like you have some more questions, you can always reach out to me and we can find some time to have a phone conversation about your specific situation, pro-bono of course!
Buying a second home is a dream of many fellow Canadians. And why not, you have worked hard and you deserve it!
If you do not require the rental income from renting out the property, meaning that it will not be purchased with the purpose or intention of renting it out at all, and that either you or a family member will be residing in there, you might be eligible for the 2nd home program, which allows you to buy with as little as 5% down so long as the property meets the minimum down payment guidelines in Canada.
If the property is valued at 500k and below, then 5% down is all it will take, provided of course you can qualify and meet the rest of the guidelines. The guidelines include, being able to qualify for this property in addition to your existing property or properties and your other monthly obligations. 10% of any amount over 500k will be required, and of course if the property is valued at 1million dollars or over, then a min of 20% down payment will be required. These are the standard guidelines and as of the time of the writing of this post, there are no exceptions.
Your intentions matter
Note, that the 2nd home program is designed for those that do not intend to rent the home out. This does not mean that you can never ever rent the home out. If your financial picture changes, and you are unable to carry your burden and the only option is for you to rent out the home that you bought under the 2nd home program, or you risk not being able to meet your obligations, there isn’t a lender in the country that I am aware of at the time of this writing, that will have an issue with this.
If however your intention was to rent the property out all along, and you are only saying that you want to buy a second home in order to be able to put less money down, then you definitely run the risk of a lender having an issue with this. Keep in mind that your mortgage broker, even though he or she is independent and does not work for any bank or lender directly, still has an obligation to maintain integrity and protect their partnership with their lenders, and in cases where they become aware of this, are required to disclose this type of information to the lenders.
A bank representative, or someone who represents themselves as a broker, and only has one lender to offer as an option for you, of course you can imagine where their interests lie – the lender that pays them a salary or a commission for selling their products or services, and offers them benefits etc. If you put yourself in their shoes, and ask yourself the question of where your loyalties would lie.
It is always best to understand your options up front and you can do so by arranging a call with your local mortgage broker. Most of the time the initial consultation is free of charge.