Buying A Cottage: Must Know Tips

The work and lifestyle changes brought on by the pandemic have many Canadians thinking about buying second properties – whether it’s a cottage, a piece of land, or a rental. For the past year, low interest rates, high city costs, and a desire for more space has sent people searching for second homes in cottage country. But be careful, there are some pitfalls to be aware of.

The pandemic has forced many people to stick close to home when traveling, and as a result, cottage sales are on the rise. “From coast to coast, the line between primary residence and recreational property is blurring,” said Phil Soper, president and chief executive of Royal LePage. “The trend began last summer when the option of traveling abroad was taken away, and continued to gain popularity as it became clear that with access to high speed internet, many people can do their jobs from just about anywhere.”

Demand for secondary properties has really increased during the pandemic, but as most people find out soon enough, financing your second home isn’t as easy as getting a mortgage on your primary home. Make sure you work with a mortgage broker who can help you choose the right property and guide you through the process, like MonsterMortgage.ca! The guidelines for a cottage purchase are more complex than for most home purchases.

The best advice is likely to use equity from your principle residence for either the down payment or lessening your debt burden on the cottage. Other considerations to think about is your new friends, Mrs. Well and Mr. Septic. Banks do not particularly care of this type of home but having a larger down payment brings more lenders to the table. Lastly, before you buy make sure you have a good internet provider. I recently had a client that thought Bell was providing service but their tower was full. Planning to escape and work without good access is a big problem.

For our Monster Tips on what to consider when planning a mortgage for a second home, here’s a breakdown by property type:

Financing Raw Land

• Minimum Down Payment: 20% to 50%
• Monster Tip: There are many situations where a bigger down payment will be needed, for example, if the lot is in a remote area, more than 5 acres, won’t be built right away, etc. In these cases, private financing may be a better option for you.

Financing A Second Home or Cottage

(An insulated property with potable water, a kitchen and bath, a permanent heat source, and year-round access.)

• Minimum Down Payment: 5% to 20%
• Monster Tip: If you plan to rent out the property, you’ll need “rental financing” instead, which will cost you a bit more.

Financing a “True” Cottage

(A cottage property that doesn’t meet the above criteria – for example, one with no year-round road access or water is pulled from the lake)

• Minimum Down Payment: 20% to 40%
• Monster Tip: You will likely need more down payment for this type of home. Without year round access getting Home insurance will be a nightmare.

It is also a great idea to talk to your home insurance company prior to buying a cottage. Many will not insure a cottage if the land value is greater than 75% of the actual purchase price. Without year round access and weekly visits to the property, many will simply say no. Without insurance, no one will finance the purchase.

It’s always best to talk to a mortgage expert prior to signing on the dotted line. Are you currently or soon to be in the market for a cottage or recreational property? MonsterMortgage.ca is happy to help and guide you through the adventure of buying a second home!