Summer. Possibly one of the best seasons of the year. It brings memories of days spent by the lake, lazy afternoons, and for many, family vacations to the cabin or cottage. Maybe you have been thinking about purchasing a little getaway for your family to enjoy during these summer months—and although the process may seem daunting at first, we can assure you that we can help you finance your secondary home for the sharpest rate-guaranteed!
First, we wanted to define when secondary financing can be used. It cannot be on a rental property and the owner must plan to occupy the property on a rent-free basis at some time during the year. You can rent the secondary property out for a portion of the year, but know that you cannot use any of that rental income to qualify to borrow the funds to purchase the second home.
Second, the property details. Pending on the details of the property, this will indicate if you can pursue secondary financing with “A” lenders (best rate) or if you will require Private Lending. Look at the table below to determine what would apply for your second property.
| Property Type | Details |
|---|---|
| Type A |
|
| Type B |
|
| Everything Else |
|
So, what is the difference between the Type A & B? Let’s look at the Loan to Value (LTV), the amortization, max loan amounts, and lender type of each.
| Maximum Loan to Value | Maximum Loan Amounts | Lender Type | |
|---|---|---|---|
| Type A Maximum Amortization
| 95% Used for property value less than $500,000 and a 5% down payment is required. Property values greater than $500,000 and less than 1 million is 5% down payment required up to $500,000 with an additional 10% down payment on the portion of the home value above $500,000 | For Metro Toronto, Metro Calgary & Metro Vancouver: $750,000 is the max loan amount. For the rest of Canada $600,000 is the max loan amount. | These can be done with an A lender at best rates. If the LTV is 95-79% it will be insured and you will have an insurance premium. |
| Type B Maximum Amortization
| 90% The down payment must come from your own resources and may not be gifted | $350,000 is the maximum loan amount, although exceptions will be made on a case by case basis | These can be done with an A lender at the best rates, but this must be done as an insured mortgage and you will be charged an insurance premium**for a list of insurance premiums in your area contact your local Dominion Lending Centres mortgage broker** |
| Rental Pool or Timeshare | There are no A lenders that will provide financing for a rental pool or timeshare through the residential side. If you are considering purchasing a property that is a rental pool or timeshare, you will have to use a private lender. | ||
The last part you will need to know is how to qualify with the ‘A’ lender or the private lender.
To qualify with an ‘A’ lender, standard income and employment verification requirements apply. You must be within ratio guidelines to debt service and have no prior bankruptcy or judgements. For Type A properties, at least one applicant must have a minimum credit score of 680, and for Type B properties, all applicants must have a minimum credits score of 680.
When qualifying with a private lender, the guidelines are hard to set out as they are very specific to each lender. In a private lender situation is all about the property details and the risk to the lender. The lender will ask themselves how much equity is in the property, how marketable is the property (in case of the need to sell), and how much of a down payment are you providing. If you would like more information on private lenders, please download our free eBook!
In conclusion, when you are looking at secondary financing the biggest factor is the property type. It all comes down to the details of the property, which will determine how much of a down payment you will require and which lender and rate you can expect to pay. If a summer cabin or cottage—or perhaps a condo in the city—is in your future, contact your mortgage broker to find out all the details that apply to your unique situation!
| Maximum Loan to Value | Maximum Amortization | Maximum Loan Amounts | Lender Type | |
|---|---|---|---|---|
| Type A | 95% Used for property value less than $500,000 and a 5% down payment is required. Property values greater than $500,000 and less than 1 million is 5% down payment required up to $500,000 with an additional 10% down payment on the portion of the home value above $500,000 |
| For Metro Toronto, Metro Calgary & Metro Vancouver: $750,000 is the max loan amount. For the rest of Canada $600,000 is the max loan amount. | These can be done with an A lender at best rates. If the LTV is 95-79% it will be insured and you will have an insurance premium. |
| Type B | 90% The down payment must come from your own resources and may not be gifted | Insured for 25 years | $350,000 is the maximum loan amount, although exceptions will be made on a case by case basis | These can be done with an A lender at the best rates, but this must be done as an insured mortgage and you will be charged an insurance premium**for a list of insurance premiums in your area contact your local Dominion Lending Centres mortgage broker** |
| Rental Pool or Timeshare | There are no A lenders that will provide financing for a rental pool or timeshare through the residential side. If you are considering purchasing a property that is a rental pool or timeshare, you will have to use a private lender. | |||
