There are many reasons why you might be interested in buying a second home in Canada. Maybe you want to enjoy a summer cottage or just a place to get away from the hectic city over the weekend. No matter what, buying a second house is a growing tendency among Canadians, especially millennials. If you are thinking about a second property, here we will explain everything you need to know.
Even when it might be your dream to buy a second house to enjoy your vacations, you can’t purchase without doing your research. You need to think about the kind of property you want to buy and how to finance it. This might sound simple, but, there are a lot of things you need to consider within these crucial questions.
We know that buying a second home in Canada is not an easy task, but with a little bit of help, the process can be smoother. That’s why below, we will tell you about possible financing options and different elements you should keep in mind when choosing a second property.
Buying a second home in Canada: Things to consider
When most people wonder how to buy a second home the first thing they think about is the mortgage. We understand that finding ways to pay for your second house might be the first thing on your mind. However, before hurrying to the bank, we recommend you consider the following factors.
1. Type of property
If you are thinking of buying a second house for income purposes in a city like Brampton, there is a wide range of options available. You could look at an apartment, a detached house or even a townhouse. In this case, the most important factor would be the location. Keep in mind that even when you might rent the second property in the beginning, it could turn into your retirement house. That’s why you should look at places you would want to live in the future.
You also have the possibility of having a property for seasonal purposes. This means you can find a little cottage where you can stay during the summer and rent for the rest of the year. Depending on the type of property you choose and its purpose, your insurance will vary.
2. Insurance costs
Most people forget to think about insurance costs when they consider buying a second home. That is a big mistake because insurance bills are a part of the expenses you can´t avoid. That’s why, once you have a property in mind, you must start asking for insurance quotes.
As we mentioned before, the location and purpose of your property will directly influence your insurance cost. For instance, if you purchase a cottage near a lake, chances are you will have to pay for flooding insurance. In case you rent the property, it could be more expensive since you have to consider situations such as injuries inside your home.
When you are wondering how to buy a second property, it is crucial to think about the upkeep. Even if this is just a seasonal stay for your family, your bills will still come every month. Plus, there could be unexpected expenses, such as damaged pipes or renovations.
If you are renting, it would be easier to take care of all the utility costs because those can be included in the renting price. Also, it is important to decide if you will rent your second property for short or long terms. That will also help you determine which utilities you will have to pay.
How to buy a second property? Your financing options
As we know, when you think about buying a second home, Canada is the top option. Purchasing a second property in the Canadian market could be a great source of income or even the source of your retirement fund. After taking a look at the main elements you should consider. Now, we are going to tell you how you can finance your next investment.
1. Refinancing your mortgage
If you are thinking about how to buy a second home, chances are you already have a main house and a mortgage. The great thing about having a mortgage is that you can refinance it and use the money as a down payment for the second home. You might be a little confused right now, but don’t worry, we are going to explain everything.
Once you have your first mortgage, every payment you make is helping you build equity. That equity will also increase if the price of your property increases due to the real estate market. When refinancing your mortgage, you can gain access to that equity and use it for other purposes.
2. Second Mortgage
When buying a second home, Canada offers the option of applying for a second mortgage. This is a very popular option among homeowners because it gives them an affordable way to pay for two properties at the same time.
For your second mortgage, the bank will offer you up to 85 percent to borrow, discounting the amount you own in your initial loan. You might be wondering what would be the collateral for your second mortgage. Well, to approve your second mortgage, your bank will use it as a guarantee of your first property.
3. Home Equity Line of Credit (HELOC)
The majority of people confused this option with the process of taking out a second mortgage. However, it is completely different. The main difference is that with a HELOC, you will only pay for the money you use, while in a second mortgage, you have a set monthly payment for the whole amount.
There are some requirements you need to meet before applying for a HELOC. First, you need to have at least a 20 percent equity on your current property. Second, you need to have an excellent credit score.
Buying a second home is an extra source of income that can bring you endless benefits. That’s why we have explained how to buy a second property in regards to your financing options. Plus, some elements most people don’t consider but are important to think about. Now it’s time to go out and look for the opportunities that the Canadian real estate market offers.