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Mortgage Matters with Joe Tomkins               May 2012

 

Buying a Second Home: Five Key Things to Keep in Mind

 

A second home can be a great way to give yourself and your family the lifestyle you deserve – but emotion shouldn’t trump common sense when it comes to buying this type of property. It pays to approach the purchase of a second home with a clear head, and with all of the available advice on financing & real estate. Here are some factors to consider:  

 

Make sure you tally all the costs. A second home has all the usual expenses such as a mortgage, utilities, and taxes. For maintenance, a rule of thumb is to set aside about two percent of the home’s value per year. Don’t forget to factor in the cost of fire insurance, and potentially other types of insurance (against floods or windstorms) depending on the location.   

 

How much you will use the place? Second home buyers should think carefully about how often they will visit and how much time they will spend there. Also, a recreational property that seems perfect now may not seem right in a few years.  For example, an isolated cabin in the woods may be great for a very young family, but may seem boring to teenagers, or may not be a suitable place for you to retire should you need to be close to shopping or other amenities.

 

Considering joint ownership? Be careful. Joint ownership can be a great way for a few families to share the costs of a place that still feels like their own. However, before you decide to split the purchase with relatives or friends, you and the other owners will have to decide jointly on everything, from when maintenance or urgent repairs need to get done, to shopping for common supplies. 

 

Thinking of buying a rental property?  Know what’s involved. While most Canadians buy a second home for recreational use, growing numbers are buying for investment purposes or family members. If you choose to rent your property through a management company, expect them to take anywhere from 10 to 20 percent of the rental income. 

 

Seek advice on financing. Many second home buyers use the equity in their primary residence for a down payment. Options for doing this include a “cash-out" refinance, a home equity loan or an equity line of credit.

 

There are unique aspects to financing rental properties and or second homes: lenders typically expect a down payment of at least 20% if the property is a rental space, and 5% if a CMHC second home. To avoid any lender insurance the down payment would have to be 20% or more. In qualifying for a rental property, a maximum of 50 to 80% of rental income may be used in your mortgage application. If a CMHC second home no rental income can be used.

 

Thinking of buying a second home? What are you waiting for? Explore your options, and make sure you get professional advice on your financing options. 

 

 

Joe Tomkins

Mortgage Expert

DLC – Canadian Mortgage Experts – Nanaimo

Office: 250 754 7775

Email: joe@cmexp.com

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