Author Topic: Buying second house in Canada rules?  (Read 28503 times)

Matte

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Buying second house in Canada rules?
« on: December 12, 2012, 06:46:59 PM »
I'm getting conflicting information about the mortgage rules.  They say that you need 20% down on investment property but I am seeing that you need only 5% down on a second home.  E currently have about 20% equity on our first home (owe 380k, appraises 445 tax, would sell 480 easy), could rent out very cash flow positive.  We are looking to get a second home to move into then rent out our existing place.  Would in need 5% down or 20% on this second house, we are looking at spending about 500k on a second place closer to both our work and the also have a basement suite.

Matte

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Re: Buying second house in Canada rules?
« Reply #1 on: December 12, 2012, 06:49:56 PM »
I realize that I am exposing myself to a lot of debt, over 800k but I am young, in a stable yet overpriced market in Vancouver and my wife and I have a combined income of 160k and were 24 years old. 

KMMK

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Re: Buying second house in Canada rules?
« Reply #2 on: December 13, 2012, 06:45:58 AM »
You have to talk to the bank. They're the ones who would be giving you that loan.

I'd feel extremely uncomfortable with that level of debt and in my experience banks only allowed up to 4X gross of mortgage debt, but I know that can vary. I feel better with 2-3X gross max.

Norman Johnson

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Re: Buying second house in Canada rules?
« Reply #3 on: December 13, 2012, 07:14:12 AM »
I would think they bank would know what you are using your house for if they checked into it so you can't really lie and say you are using it for a 2nd residence. (Well you can, but it might come back to bite you.) Your insurance company sends the bank a copy of your insurance policy and you'll probably want to insure your rental property differently then your primary residence. You would have to see if the bank would lend the money to you. We bought vacent land and our bank wanted 50% down, but didn't care if we used the equity in our house to come up with that money.

If the market is overpriced, why are you buying another house? Wouldn't you want to wait until you find something that you won't be upside down on if the market deflates significantly there? Do you really want to be landlords that bad? Wouldn't it make more sense to either save up a huge portion of your salary or pay off your house?

Mattamatics

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Re: Buying second house in Canada rules?
« Reply #4 on: December 13, 2012, 03:42:43 PM »
The issue with the 5% vs 20% down relates to CMHC (mortgage insurance). Canadian banks will not do an unconventional mortgage without CMHC (conventional = 20% down). Per CMHC's site:

Here's a flyer explaining Second Homes
http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Second-Home.pdf
So essentially as long as the second home is one unit - you theoretically can purchase with 5% down***

Also just to note:
http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_003.cfm
•You will typically have a down payment of at least 5% of the purchase price of the dwelling, depending on the dwelling type. •Single-family and two-unit dwellings (5% minimum down payment)
•Three- or four-unit dwellings (10% minimum down payment)


***Per discussions with my banker, it's becoming more difficult to get a second home insured with CMHC (which results in having to put down 20%)

You could refinance your current home - assuming you have 20% equity (the bank/CMHC will be the ones to determine that) the bank will then remove your home from CMHC - Making it easy for you to buy your second home with 5% down. (Note you'll likely have breaking fees etc - but if you blend/extend the bank will likely wave all or most of these fees for you) Then it will just be a matter of qualifying for the additional mortgage... I assume you've ran the numbers, and your current home will be profitable as a rental (Both NI&CF are positive?) I would not be doing this on speculation that your home will aprreciate in the short term (<5 years) Also note: you'll incur CMHC fees again on the new property.

However I'd read this blog a bit before buying a second home in Vancouver.  http://www.greaterfool.ca/ (Personally I wouldn't want to be buying in Vancouver at the moment)


TL:DR - Yes it's possible to get a 2nd home in Canada with 5% down - make sure you're comfortable with such a high exposure to RE and that your rental will be profitable. May I suggest you consider starting a second thread breaking down your rental plans (Ie what the costs are, expected Revenue etc) so that more seasoned RE investors might point out potential pitfalls you're not considering.
« Last Edit: December 14, 2012, 07:15:59 AM by Mattamatics »

Posthumane

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Re: Buying second house in Canada rules?
« Reply #5 on: December 13, 2012, 04:00:48 PM »
I believe the key here is that the second home will be "owner occupied." If you were buying strictly a revenue property then you wouldn't be able to get it with just 5%, but as an owner occupied property (regardless of whether it's single or multi-family) it's the same as buying your first home. As Mattamatics mentioned, you may have to get rid of the CMHC insurance on your current home, though you can do that since you have 20% equity now. Debt-to-income ratio may be a problem for you with two large mortgages.

I don't know what the rental market is like in Van, but I would not bet on being able to make a $400k+ house cash flow positive in, say, Calgary. At least not with 80% financing. Care to share your calcs?

Matte

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Re: Buying second house in Canada rules?
« Reply #6 on: December 14, 2012, 11:41:44 AM »
When I said that it's overpriced i meant like expensive but for a reason, little developable land. My existing place is pretty strategic and would pass all tests as a good rental as far as cash flow.  It is in maple ridge wich is an up and coming city ranked as #2 best place to invest in Canada.  2 new bridges and infrastructure has helped overcome the stagnant values.  We are looking to move for the reason of my wife's job and saving money and time commuting as well as being closer to family.  I understand renting a basement suite would be Less risky and still accomplish the same goals but with a second place we could rent that basement out too, adding to income and wealth over the long haul.  I know it's bit of risk up front but the payoff could be huge.  As for getting my existing mortgage free of cmhc that is possible, with my last blend and extend I did not bother as I had to hire the appraiser myself and pay a notary.

Kazimieras

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Re: Buying second house in Canada rules?
« Reply #7 on: March 05, 2013, 11:44:23 AM »
I would be careful about what rankings you look at as Maple Ridge (assuming the BC one) is effectively Vancouver. You have all the pitfalls of the Vancouver market, but with no perks (imho). The market is still super hot and there is a trend to move into the city, and this is way outside of it. I would say sell your current place, rent for a year and then buy in Maple Ridge.

As a side note, the banks in BC I swear are nuts. I bought an income property in Ontario and the bank here required us to have 25% down. Technically the bank required 35% for a rental property, however with our income and credit rating we were able to have it reduced since it fit as a "second home/cottage".