If you're considering buying a second property in Canada, here's what you need to know:

Second Home or Investment Property - What is the difference?

Second Home: A second home is a property where the owner lives part-time, like a vacation home. A multi-unit dwelling where the owner lives in one of the units and rents out the others is also considered an owner-occupied residence.

Investment Property: An investment property is one that the owner does not occupy and rents out instead. These properties require meeting specific mortgage criteria, which may be stricter than for second homes.

Mortgage Process for a Second Property:

Qualification Requirements

Whenever you’re applying for a mortgage, you will have to:

1. You must pass the Canadian mortgage stress test.
2. Meet debt service ratios, typically a maximum GDS of 39% and TDS of 44%.
3. A strong credit history is important; a score of 680+ is preferred for better rates.

When applying for a mortgage with rental income, only a portion of the rental income is considered for qualification. Some lenders allow up to 50% of the rental income, while others permit up to 80% and subtract related expenses. Additionally, lenders may require a minimum liquid net worth beyond the property's value.

Note that qualifying criteria can vary among lenders, so consult your mortgage broker for specific requirements.

Down Payment

Down payment requirements vary based on owner occupancy and property use.

For personal use properties (e.g., vacation homes), down payment requirements are similar to those for a first home.

For rental properties, you will expect a minimum down payment of 20%. The funds must come from your own savings, no gift allowed.

Mortgage Rates

Interest rates for rental properties usually include a premium of 0.10% to 0.20% more than for properties where the owner will live.

Purchasing a secondary property, whether for investment, rental, or vacation, can be a fantastic opportunity! As your mortgage broker, I’m here to help you find the best solution tailored to your unique needs.