You might be surprised to learn that you don’t need to be one of the uber rich or make six figures to have a second property. You just need to have knowledge, determination and financial planning! If you are purchasing a secondary property with the intention to rent, here are a few extra things to know:

Before you look at purchasing a rental property, there are a few things to consider:

1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.
2. Only a portion of the rental income can be used for the qualifying and determining how much of a mortgage you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income while subtracting your expenses. This can have a much higher impact on how much you can afford.
3. Interest rates usually have a premium on them when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

Rental income from the property can be used to debt service the mortgage application, but do bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property. Also, if you do eventually want to sell this property, do note that it will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

Prior to taking on a secondary property, you will need to have your down payment in order (whether from savings or home equity) based on the minimum requirements, and also have sufficient credit score to qualify (680 or higher). In addition to the down payment, you will also need to pass the stress-test and prove that you can financially carry both mortgages.

If you are looking to purchase a rental property, give me a call before you start. I would love to

help review your financial situation, current mortgage and equity, and help you make a plan. The keys to success are right around the corner with a little bit of expert advice!

Anastasia (Staci) James

905-299-8492

ajames@dominionlending.ca

If you are dreaming of your very own vacation home, there are ways to make it happen! Let me walk you through your options.

When it comes to taking on a vacation property, you will need to have a minimum down payment of 5% of the purchase price. If you are purchasing a non-winterized vacation home, or will not have year-round access, then you will be required to put down 10%.

You must also have sufficient credit score to qualify if not putting 20% down. In addition to the down payment, you will also need to pass the stress-test and prove that you can financially carry the mortgage of your existing live-in home and your new vacation home.

When purchasing a vacation home or property, most lenders will allow you to borrow money against the equity you have in your current home and use it as a down payment for a second home. This is done through mortgage refinancing, which means getting a re-evaluation on your home and then redoing your mortgage based on the current value. This will allow you to tap into the equity your home has built over the years, and pull out the extra funds for a down payment on your secondary property. Keep in mind, when using some of your current equity, it will increase the principal amount and the interest payments on your mortgage as the mortgage is now refinanced at a higher amount.

Another option to unlock your home equity is through a line of credit or a HELOC (Home Equity Line of Credit). This option allows you to borrow money using the equity in your property, with the property as collateral. A HELOC serves as a revolving line of credit to allow the borrower to access funds, as needed, letting you utilize as much (or as little) equity as required. In Canada, you are able to borrow up to 65% of your home’s value using this method. However, keep in mind, your HELOC balance AND current outstanding mortgage cannot exceed 80% of your home’s value when added together.

If you are ready to purchase a vacation property, I would love to help review your financial situation! I would be happy to take a look at your current mortgage, equity and review your options to help you find the best fit. The keys to success are right around the corner with a little bit of expert advice.

Anastasia (Staci) James

905-299-8492

ajames@dominionlending.ca