What to know when you buy a second home in Canada
Buying a second home can be a good idea, but only if it makes financial sense. Having two properties means doubling your expenses. Think about why you want a second home and ask these questions to see if it's a good financial idea:
Is it harder to get a second mortgage?
Banks and financial institutions use the same criteria to approve a mortgage to buy a second home as they would on your primary home. These factors include your income, job stability, credit score, total outstanding debt and available credit limits.
The difference is that this time around you already have a larger amount of debt with your first mortgage. That is definitely something lenders will take into consideration and may make it more difficult to be approved for a another mortgage.
The good news is that you may not need another mortgage because you can use the equity from your existing home. If the value of your home is greater than the outstanding mortgage loan, or if your home is paid in full, you can leverage that equity to get a mortgage for your second home.
What do you need to know about second home insurance?
According to Bankrate your insurance costs are something to consider before buying a second home. If your new home is in a different area than your primary home the insurance needs will also be different: "If you are considering a second home on the beach, factor in the cost of flood insurance in addition to your home insurance,” suggests Bankrate.
Another consideration is that, "getting insurance for a second home, depending on the location, may be much more challenging than for a primary residence. This is because of the lack of geographical proximity and the concern of the insurance company that the home will not be properly maintained," continues Bankrate.
Can you afford the upkeep?
If your second home in Canada will be used as a vacation property, you'll probably only live there on a part-time basis – during weekends and family vacations. Even though you aren't living there full-time, there are still full-time costs involved for the upkeep.
Whether or not you're physically at the property all year round the property needs to be maintained from January to December including lawn care, plumbing, and home repairs. Groundskeeping fees, as well as the utilities, still need to be paid every month. Unfortunately, you can't turn the water bill off and on like you do the faucet.
Do you want to rent out your second home?
If you want to buy a second home as an investment property and plan to rent it out, keep in mind there are variable costs involved. The purpose of the home may be to rent out, but there is nothing that guarantees you'll find a tenant right away. If the home is vacant for any period of time, remember that the mortgage, taxes, and other expenses such as home owners insurance are still due each and every month.
It's a good idea to have three to six months of the total costs saved up to ensure you don't default on any payments if the home isn't rented.
Buying a second home can be a great investment; just make sure to take all costs into consideration before signing on the dotted line.