Improving your Life with a Secondary Home – our Webinar Takes you Through it All

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On Tuesday, the 27th of August we had a great chat during our live webinar all-about secondary homes. Our mortgage expert, Jacques, took us through the ins and outs of this interesting topic. We know that a second home can be a great lifestyle enhancer, but to many of us, it may feel out of reach. This ‘Secondary Homes’ webinar laid down the facts and got us excited thinking about the endless opportunities that await.

One of the most misunderstood mortgage programs is for a secondary home. A lot of people ask us: “What is a secondary home? A house? A rental property? Huh?” It’s not a theme or topic that comes up often, and that’s why we saw the need to get the content out there. Jacques said during the chat that he feels like a second home is one of the best-kept secrets! But shhh.

To start, we’d like to clear up the definition of a ‘Secondary Home’. It is not a primary Canadian residence, but rather owner-occupied or occupied by an immediate family member. Remember that an “immediate family member” is a spouse, parents, legal guardians, or siblings. Not a cousin or uncle. It is not the home that you’re living in permanently, but no one else is occupying it either. A good, classic example is a cottage – a place you go to for a weekend or a few days, but that usually stands empty.

What a lot of people haven’t thought about is a home for their kids while they’re away for studies. This way, you’re saving on residence fees while accumulating another property. This is considered a second home.

Another example of a secondary home is a place for your ageing parents. This could be a place nearby that still gives your folks their independence, but keeps you at peace knowing they’re close enough to help if anything happens. Recently, a client said to Jacques that he finds it crazy to pay $2000 rent per month for a home for his mom, and would rather buy a condo, pay the rent and then own the equity of the property.

A client that works in Toronto but lives in Windsor, is sick and tired of hotel bills. She wants to be comfortable in her place during the week and looks at purchasing another home. This is an example of a secondary home, and is ideal for business people who need their own space and would like to save on travel costs and time spent in the car.

Remember that you don’t have to justify your secondary home, it just needs to be logical and make sense according to the requirements.

There are two categories for secondary homes to consider – type A and type B. We’ll be starting with the property requirements for a type A property:

We'll be starting with the requirements for a type A property:

It must be a maximum of one unit
It cannot be rented out – not a rental property
The property has to be on a permanent foundation. There is no home in Toronto with a non-permanent foundation, but this clause relates to a cottage
It must be zoned as residential, rural or seasonal
The property must have at least a kitchen, 3-piece bathroom, bedroom and common area
Year-round access serviced by the local municipality or private road with a service contract in place
The property must be winterized with a permanent heat source (a stove is not a permanent heat source)
Water source: well, municipal, cistern lake or river water if the property has its filtration system. It must have a permanent water source
The property must have electrical power. In some cases, alternative energy sources may be considered. Note that this is on a case-to-case basis
Geographical areas: good market appeal in the area

Mortgage requirements for a type A secondary home (insured/insurable mortgage requirements):

Maximum one vacation property per applicant
Property value < $1M
Maximum loan amounts in the following areas:
- Metro Toronto, Metro Calgary & Metro Vancouver: $750,000
- Rest of Canada: $600,000
Minimum down payment: Same as primary residence requirements.
Maximum amortization: 25 years
Traditional and fully verifiable income requirements
Purchase + Improvements allowed
No 3rd party guarantors for qualification purposes

Note: Gifted amounts are allowed!

Property requirements for type B secondary homes:

Here again, the property must be a maximum of one unit
It cannot be rented out as it is not a rental property
Foundation may be floating. E.g. sit on blocks
The property must be zoned as residential, rural or seasonal
Seasonal road use is acceptable. The road does not have to be plowed during winter
Property may be accessible only by boat
No permanent heat source is required. For example, a wood stove, fireplace, etc.
Water source needn’t be drinkable, but there must be running water in the home.
Holding tanks may be considered provided it is common for the immediate area and meets municipal/provincial requirements.
Geographical areas: good market appeal in the area

Mortgage requirements for a type B secondary home (insured/insurable mortgage requirements):

A maximum of one vacation property per applicant
Property value < $1M
Maximum loan amount: $350,000
Minimum down payment: 10% and must be from own resources. Gifts and/or borrowed down payments are not acceptable
Maximum amortization: 25 years
All credit scores must be above 680
Purchase + improvements allowed
No 3rd party guarantors for qualification purposes

Type A and type B have different requirements, and it’s important to look closely at the different specifications for each. This will impact the decision you make, and ultimately whether or not you decide to go ahead with the purchase of a second home.

Let’s have a look at what properties are ineligible for the secondary home mortgage program:

Rental or rental pool properties (watch out for fraud – a secondary home cannot be rented out). You need to look at the terms and conditions of the lender for clarity on this,
Mixed-use properties, for example, a residential unit on top and a commercial unit at the bottom
Timeshare is unfortunately not eligible under the secondary home program
Co-ops

The Benefits to Keep in Mind

Now for the fun things – benefits! A secondary home is a wonderful way to build some beautiful and special family memories. A cottage is a place to escape to when life gets busy. It’s your haven for a break and some down-time, especially in the warm, summer months.

Businesspeople can use a secondary home to make life more comfortable. No more staying in cheap hotels with bedding that isn’t your own. Plus, all of the time you’ll save on travelling! It’s a great way to increase your net worth.

A secondary home can mean significant cost savings while your kids are a university. Jacques has had a few clients who have sold the “study home” after their kids’ study period ended, making a great profit. Instead of making a loss on accommodation fees while your kids are at university, make a profit.

Another big one is the costs incurred on mom or dad living in a home where you pay the rent. Rather have them close by, controlling the environment they live in, and paying off a mortgage.

A quick recap – the benefits of owning a secondary home:

1. Owning a vacation home creates family memories
2. Significant cost savings for children at university and business travellers
3. Makes business travel more comfortable
4. The ability to care for frail or financially dependent family members
5. Increasing your net worth
6. Purchasing a second property with less than 20% down-payment

Jacques ended off the webinar by running a few numbers – this is a tradition. Our case study here was based on Bruce and Mary’s financials. A big thing to keep in mind is your credit score. We encourage you to keep an eye on this. Running the numbers also gives you a proof of the content we chatted about throughout the evening. If you give us your documents, we can pre-qualify you. This way you’ll know exactly what you’re in for up-front.

In closing, we had a super Q&A session, where Jacques took some time out to give feedback to our participant inquiries. We hope you enjoyed this summary, and for those who watched during the live session – thank you for your support. It was awesome!

Watch our social media pages for info on the date and time of our next webinar.

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