How to buy a Second Property?
You’ve landed here because you are searching on how to buy a second property. Welcome, I’m going to do what I can to answer this question for you in the best possible manner.
The truth is, there are many different ways for you to buy a second property, it really depends on what your purpose is.
How to buy a second property with equity
Are you looking to buy a second property with the equity that you have in your existing property?
It’s definitely possible, and in fact it is a great idea to use the equity that you have built up and get it working for you. One way to do this is to refinance your mortgage – this is often referred to as an Equity Takeout.
How to Calculate how much equity is available in your property
You are eligible to take out up 80% of your property value – you may have an existing mortgage registered against your home in which case this you would have to take this into account – let’s look at an example:
Your Home is worth $500k and you owe $300k on your mortgage. You would take 80% of the value and subtract what you already owe to get $100k
$500*0.8= $400; $400 – $300 = $100
How to buy a second property for rental
If you are looking to buy an investment property, or a rental property, you are going to require 20% down payment for this venture. It’s been a number of years now that the government has changed the rules for investment properties, requiring a minimum of 20% down payment. In the above scenario, with the 100k available cash from the equity of your property, the maximum purchase price you would be able to qualify for due plain and simply for this rule of thumb is $500k. 100k is 20% of 500k.
How to buy a second property with no deposit or with zero down
As of right now, there are no zero down payment lending options in Canada. You are able to use 100% of the down payment from equity, and also you are able to finance your down payment. If you qualify, then you can use a borrowed amount for your down payment.
How to buy a second property with little down payment
If you are going to be buying the second property to live in, you can put as little as 5% down, provided your property meets the minimum lending requirements. Many people are not aware that buying with 5% down or less than 20% down is not only for first time home buyers. This is possible even if you are buying a second property (or a third or more) as long as the property is going to be lived in by yourself or someone in your family.
The minimum down payment requirement is a tiered requirement, based on changes to the guidelines by the government from a few years ago. The minimum required down for a property valued at 500k or less is 5%. So if you are buying a property up to 500k, for the down payment you only need 25k. For any amount over 500k, for that amount above 500k, you are required to put down 10%. So if your property is 600k, then you will need to come up with 35k, 25k for the amount up to 500k and 10% of the remaining balance which is 100k (10k).
If you are looking at a property that is worth over $999,999.99, then the min requirement for the down payment will be 20%.
What many people do is they rent out the current home, they convert their existing primary residence in to a rental, in other words and they make the new purchase their primary residence. Based on the guidelines, they can now purchase the new property with less than 20% down.
Can I buy a second home before selling the first
Yes, this is possible, especially if you can qualify for being able to carry both homes, then you should have no issues. Most people though, may require bridge financing and that is something that is available with most lenders. In order to qualify for bridge financing, you will need to have a firm agreement in place for someone to buy your current home that you own. Once you have this, you can go and purchase a second home, and if the sale of the new purchases closes before the completion of the current home you are selling, then there is a gap between you getting money from your sale and you needing money for your purchase. The gap is filled by what is known as a Bridge loan.
If you have not received a firm sale on your property that you are looking to sell, then a bridge loan will not be possible. Before you attempt to buy a house before selling the first one, you definitely should consult with a mortgage broker to review your numbers. A good mortgage broker will be able to tell you whether or not you will qualify to be able to do this.