Purchasing a second property? Here’s some mortgage tips to get organized: Have you ever considered purchasing a second property either as a rental, a home for your student to live in or even a cottage? If you’ve done a good job at paying your mortgage and keeping your debts under control, you likely can buy a second property.

So what’s next? No matter how financially secure you feel, you’ll want to talk to a mortgage broker and develop a simple plan for that second property. There are two main things you’ll need to consider:

  1. How much money you need for the down payment and what’s the best place to get the money; and,
  2. What’s the maximum purchase price you can qualify for and what will be the monthly payment.

If you are purchasing a second home for a family member to live in such as a student or elderly parents, the minimum down payment required is 5%. Some people are surprised at this, but the companies which provide default insurance such as CMHC, Canada Guarantee and Genworth all have insured mortgage programs for second home purchases. This program is not unique to your bank or any financial institution.

If you are purchasing a rental property, then the minimum down payment is 20%. In this case most people wouldn’t have access to cash for the down payment and a secured line of credit (SLOC) from your primary residence can be used. The benefit of using a SLOC is the interest on the loan is tax deductible.

Determining your maximum purchase price should be straight forward if you’ve provided all of your income documents to your mortgage broker. I often get push-back from clients and I sometimes hear, “my bank didn’t ask me for that”. In my world, that means trouble. You want to be sure that your mortgage pre-approval is thorough and you’ll require those documents anyway for the approval. Why not provide them up-front so you know with confidence you’ll get approved once you find the property?

Finally, calculating the monthly payment is critical because it will help you determine if you’ll be cash-flow positive and how much you’ll need to contribute towards the property.

Purchasing a second property can increase your net worth, while also providing good housing to others. Please call me if you’re curious on what you can do!

 

© Sandra Lastovic is the Principal Broker with the Mortgage Centre in Guelph and services the Kitchener/Waterloo/Cambridge markets as well. With over 15 years’ experience and holds a M.Sc. from the University of Guelph. She was recently ranked at the top 75 agents in Canada by The Canadian Mortgage Professionals annual survey and 2017 Most Influential Women in the Mortgage Industry. She can be reached at 519-763-3900 x1001 or www.skipthebank.ca™