What to Consider Before Buying a Vacation Home
Canada is certainly a country known for it’s cottage culture and Canadians are growing more and more interested in the prospect of buying a second vacation home. Whether it be for a weekend away to unwind or an extended summer getaway, a second home doesn’t have to remain a dream. But before you jump into any rash purchases, it’s important to do your research to know exactly what you’re looking for and what to consider when buying a second property.
Practicality: When looking for a vacation property, there are plenty of options to choose from, but location is always key. You may choose to stay local, to have the option to easily drive down to your vacation home on weekends. Others may choose to purchase property in the States or abroad. You’ll want to ask yourself a few lifestyle questions before you make your decision. Do you plan to spend a lot of time at your vacation home each year? The costs of owning a second home can add up and with many Canadians only having a few weeks’ vacation time to use each year, it’s important to question whether or not owning a second property is justified when considering cost and maintenance against time spent at the home. Are you someone who likes routine or do you enjoy exploring new places when you vacation? You may decide putting those funds toward travel as opposed to vacationing in the same place each year is more your style. It’s up to you to decide the type of vacation lifestyle that appeals to you most and how you’ll get your money’s worth of experiences.
Financing and Costs: The annual costs of owning a second property can add up and that’s why its important to evaluate your finances and determine if this decision is feasible. In addition to financing, consider costs of maintaining the property, insurance costs, property taxes (consider differences in both local or abroad), utilities and furnishing. Now ask, what are your financing option? Let’s assume you’ve built some decent equity on your first property by the time you’re ready to purchase your second. You may consider a few options such as refinancing your first home or taking out a second mortgage (home equity loan – depending on the institution you can borrow up to 95% of the value of your home) to utilize your equity towards the purchase of a second property. There is also the option of a Home Equity Line of Credit (HELOC) not to be confused with taking out a second mortgage, this revolving line of credit requires you to have a 20% equity already built on your home. However you only pay interest on money used. These are just a few options to consider, but it’s important to talk to your financial advisor about what will work best for your unique situation.
Get Approved: Just like with purchasing your first home, you will need to get pre-approval for your mortgage for the second home. Don’t be too discouraged by this, as the process for your approval will feel very familiar, your lender likely to ask you questions regarding you credit history, financial standing, employment record, etc. So long as you provide stable proof that you are capable of taking on a second mortgage, you should have no trouble obtaining an approval.
Now that you know the three key steps to buying a second property, you can go into the process being fully aware of what to expect and determine confidently if this is an option for you! Need more advice on how to buy a vacation home? I’m here to help!