Are you looking to buy a second home or property in Quebec? Here is the advice of our brokers to guide you in the purchase of your second home.
Down payment amount Second home purchase
In order to determine your down payment, you must first determine if the purchase of a second home is for business purposes or for a second home.
For example, when buying a cottage, determining the purpose of the purchase is important because it determines the amount of the down payment.
Income property
If you plan to become an owner-occupant of an income property then you must make a down payment of 5%.
If you wish to own an income property without occupying it, then you must make a 20% down payment.
Secondary residence
The down payment amount for the purchase of secondary residences, for example the down payment for a cottage, is 5% for an insured loan and 20% for a conventional loan.
If the purchase price of your second home is $500,000 and you opt for an insured loan, then your down payment is $25,000.
If the purchase price of your second home is $500,000 and you opt for a conventional loan, then your down payment is $100,000.
How do you finance the down payment on your second home?
Here are 4 solutions to finance your down payment on a second home in Quebec.
Savings
A first solution to finance the down payment on your second home would be to use your personal savings. So if you’re thinking of buying a second home, start saving now to put some money aside.
RSP
Another option would be to finance the down payment on your second home through the savings accumulated in your RSP. The RSP is an account that allows you to save for your retirement or to buy your second home. The amount deposited in your RSP is deductible from your income and generates tax refunds. This money can be used for the down payment on your second home.
HBP
For the down payment on your second home, you can participate in HBP for your home ownership by withdrawing up to $35,000 from your RSP without paying taxes. That’s a lot of money to finance the purchase of your second home and get a mortgage.
Selling the first house?
You can also raise the down payment for your second home by selling your primary residence.
However, is it better to sell before buying or to buy before selling in Quebec? Both options have their advantages and disadvantages.
On the one hand, selling your home before buying your second home would make it easier for you to get a second mortgage, and on the other hand, you would not have to pay off two mortgages at the same time.
On the other hand, buying the second home before selling the old one gives you more time to move and sell your current home when it suits you.
If you are hesitating between the two options, we advise you to call on a real estate broker who will be able to advise you.
Buying a second home with no money down
In Quebec, for any property purchase, a down payment for a second home is generally required.
Ideally, you should save up for the down payment on your second home as soon as possible. However, it is always possible to finance your down payment with a family gift or collateral mortgage.
How to finance the purchase of your second home
Here are the 5 steps to financing the purchase of your second home in Quebec.
- Calculate your debt ratio
Before you start the process of buying a new home, it is essential to know your debt ratio so that you don’t waste your time.
Once you know your debt ratio, you will have an idea of the budget you can devote to the purchase of your second home and start looking.
To take out a loan in Quebec, you must have a good credit history or justify a certain financial situation. It is possible to provide a bank reference in your country of origin (if you have been in Quebec for less than 12 months), as well as bills (Hydro Quebec, Bell, rent payments, etc.) that will confirm that you have respected the terms of payment.
Ask a mortgage broker to calculate your debt ratio, it’s very quick and free.
- Get pre-approved
Before you can get your mortgage to buy a property, you must be pre-qualified. To do so, you must take care of your credit score, determine your needs and abilities, and draw up your financial situation. We advise you to contact our brokers who will guide you through this process to get pre-approved.
- Check the terms of your current mortgage
If you took out a mortgage on your first property, check the terms and conditions before taking out a second mortgage on a second home.
You need to make sure you have the ability to take out a second mortgage before you proceed with the purchase of a second home. This is because while you are paying off your second mortgage, you must also continue to pay off your first mortgage. If you fail to make your second mortgage payment and find yourself in default, you could lose your home.
A portable mortgage allows you to transfer the fixed interest rate, balance and maturity date from your current mortgage to your new mortgage.
- Get a bridge loan
The bridge loan is a bridge between the sale of your house and the purchase of your new property. This means that you have a mortgage for a specific period of time, usually 90 days.
A bridge loan is a short-term mortgage that uses the equity in your current home to cover the costs of your second home. This method allows you to avoid missing out on your second home while waiting for your current home to sell.
- Get a mortgage
Check the features of your current mortgage. By switching to a portable mortgage, you can transfer the fixed interest rate, balance and maturity date of your current mortgage to your new mortgage.
If you already own a home, you still need to get a pre-arranged mortgage before you start looking. You can use the equity in your current home to determine how much money you have available to purchase your second home.
In some cases, in addition to your mortgage, you may be able to get a renovation loan to do work on your new home.
Questions to ask yourself before buying a second home
What is the purpose of a second home?
Before you start looking for your second home in Quebec, it is important to determine the purpose of this purchase. Do you want to buy a second home for business or personal use? This choice will also have an impact on the granting of your mortgage loan.
Visit the area
Before buying your second property, we recommend that you visit the different areas of the city in Quebec (visit the surroundings, see the activities to do around, etc.) in which you wish to live in order to determine if it corresponds to your needs and if you can project yourself to live there.
Consider the potential risks
Before you buy a second home, you should consider the potential risks. To do so, we recommend that you have your home evaluated and a detailed inspection performed by a professional. This inspection is visual and its objective is to analyze the various components of the construction in order to reveal the condition of the property. The inspector’s mission is to provide you with a detailed report outlining the findings and assumptions made about your property. Condition of the roof, risk of flooding, foundations, etc. It’s best to know this kind of information before committing to the purchase of a second home.
Insurance
If the down payment on your second home is less than 20%, you must obtain mortgage loan insurance from the insurance companies(CanadaMortgage and Housing Corporation, Canada Guaranty, Sagen).
This insurance protects your mortgage lender from any default by you and allows you to obtain lower interest rates than uninsured loans.
