Independently, owning real estate is an intelligent way to build wealth, but purchasing a second property, whether a vacation home or an income-generating rental, can lead to even greater financial gains over time – among lifestyle advantages.
However, buying a house while you already own a house, does entail some complexities. These nuances will vary based on your aspirations and financial resources.
In this blog, we will cover a number of key considerations for buying a second house.
Looking to buy a second property? Our strategic buying services can ensure you optimize your investment. Reach out to get started. Call 416.772.4723 or email us at info@christensengroup.ca.
How to Buy a Second Home
Speaking generally, there are two common yet distinct intentions when it comes to secondary home purchases. The first pathway is buying a second home with the intention of owning and using two properties long term. This could entail recreational or investment-related motivators.
The other pathway is buying a second home with the plan to sell one’s current property in the near future – limiting the time spent managing two homes and potentially, two mortgages.
Both of these routes bring special considerations for buyers. As you approach the market, it’s critical to think strategically about your intentions, finances, and ideal outcomes.
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Option One: Dual Property Ownership
First, we will explore considerations for buying a second house that you intend to keep, either as a part-time recreational home or as an income-generating investment.
Mortgages For Second Homes
Today, one of the most influential variables for home buyers is interest. To that end, buying a secondary home will require taking on an additional mortgage, which is a major financial commitment in its own right.
One thing to consider is that lenders may have different standards and products for second homes. Therefore, you will want to be thorough when researching banks and brokers.
What’s the Minimum Downpayment on a Second Home?
If your second home will be a recreational residence (such as a cottage or vacation property), the down payment requirements offer more flexibility. Beneficially, government regulations classify these homes as secondary residences – barring full-time occupancy. Consequently, buyers can typically make a down payment of less than 20% and still qualify for financing.
Implications For Investment Properties
Owning a dedicated investment property grants you the ability to use the passive income earned from the property itself towards the mortgage. However, if you intend to earn income from a secondary property rather than make it your primary or part-time residence, different financing rules will apply. More specifically, a minimum down payment of 20% will apply for a mortgage on this type of property.
Taking stock of your finances ahead of your home purchase? Check out these blog posts to learn about the process of obtaining a mortgage.
- How to Find the Right Mortgage Lender
- The Mortgage Stress Test Explained
- What Not to Do Once You Have a Mortgage Pre-Approval
Option Two: Buying a House Before Selling
Rather than buying a second house for recreational use or investment purposes, you may be looking for your next full-time home. In other words, you also plan to sell your existing home as part of the process. As you may expect, there are a number of important considerations for this path as well.
Determining Your Approach
If you will be moving to a new house, one major decision to make is whether you will buy or sell first. Each option has its advantages and disadvantages, so it’s important to think critically before you head to the market.
For instance, choosing to sell your current property before buying another eliminates the risk of managing two mortgages at once. However, waiting for your home to sell before buying could cause you to miss out on a particular property.
It is advisable to work closely with your real estate agent to determine the appropriate path for you.
Leveraging Equity
One way a second home purchase differs from the first is equity. As you approach the purchase of your second home, you now have a substantial asset that you can tap into to maximize your buying power.
To that end, you should take all the necessary steps to optimize the results of your home sale. This includes partnering with a top-performing agent, preparing the home for increased buyer appeal, and choosing your price strategically.
Financing Considerations
Like purchasing a vacation home or investment property, buying your second primary residence will also involve complexities in terms of financing. Once again, exact considerations will differ based on your circumstances. However, there are some general items that will be valuable to know.
For instance, if you purchase a second house before selling your current one, you will be bearing the financial burden of owning two homes at the same time. This includes mortgage payments, utility costs, property taxes, etc. These expenses, paired with the costs of moving can be significant, therefore it’s a good idea to have a solid budget in place should you go this route.
Buying a second home? Our strategic buying services can ensure you optimize your investment. Call 416.772.4723 or email us at info@christensengroup.ca to begin.
