Buying a vacation home can be very different from buying a primary residence. In particular, mortgages for vacation homes function differently than standard mortgages. Anyone who wants to buy a vacation home should be aware of the how mortgages for vacation homes work, to make the home-buying process go more smoothly.
How to Obtain a Mortgage for a Vacation Property
People choose to buy vacation property all over the world. The type of mortgage the person must get will depend on the location of the vacation property. Vacation property that is in Canada will require a different mortgage from vacation property in a foreign location.
Buying a Vacation Property in Canada
There are many private mortgage companies that will lend to buyers who are purchasing a vacation home located in Canada. As with standard mortgages for primary residences, buyers are required to make a 20% down payment.
Buyers who do not make the standard 20% down payment must pay for mortgage default insurance. This dramatically increases the amount the homeowner must pay on a monthly basis, thus limiting what the buyer can realistically afford to borrow. CMHC no longer insures mortgages on vacation properties, so home buyers who need default mortgage insurance for their vacation property must go through a private insurer.
When trying to decide who to approve for a mortgage, lenders will also take into consideration the property itself. Properties that are difficult to access, have no safe or consistent water source and are not located close to popular destinations may be approved for lower mortgages than other properties. Buyers must be ready to front more money for these properties.
Buying Vacation Property in a Foreign Country
Typically, a Canadian lender will not loan money to buy a home unless it can be registered with a Canadian land title. The easiest way for a home buyer to purchase a vacation home in a foreign country is for the buyer to borrow money from a Canadian bank that has branches in the country where the property is located.
Buying in the United States tends to be easier than buying in other foreign countries. This tends to be true because there's more similarity between the banking industries in these two countries.
Buying Without a Mortgage
Some home buyers find it's easier to buy a property without getting a separate mortgage. Instead, they use their current home to borrow money. Homeowners can refinance up to 80% of the value of the home. This means that a homeowner with a property worth $500,000 can borrow up to $400,000. This enables the homeowner to borrow money that can be used to buy a vacation home without taking out a separate mortgage.
Work With a Professional
Home buyers who are interested in buying a vacation home, either in a foreign country or in Canada, can do so by working with a professional. Working with a professional gives the home buyer a resource they can use throughout the process.
If you're a Bayside home buyer who is interested in buying a vacation home sometime in the near future, get started today. Contact a real estate professional in the area where you're thinking about buying a home.