Plan ahead before buying a cottage
More complicated financing
There are several elements to keep in mind when it comes time to secure financing for your dream cottage:
- A secondary residence does not qualify for the Home Buyer’s Plan.
- Canada Mortgage and Housing Corporation does not offer mortgage loan insurance for secondary residences. This means you need to have a minimum down payment of 20%.
As it can take longer to sell a secondary residence than a primary one, in large part due to the number of rentals available on the market, financial institutions might be cautious about granting a loan.
This is why they may impose certain conditions to buying your cottage, such as requiring a higher down payment.
They could even refuse to finance the purchase of your cottage if it is not accessible all year round or if you are self-employed with no fixed income.
Before applying for a mortgage, you should prepare a file for every financial institution with different selection criteria. This work can be demanding and time-consuming.
Buying a cottage means more expenses in addition to your main residence:
- Decoration and renovation
- Property taxes
- Electricity and heating costs (a minimum is required in winter)
- Condo fees, if applicable
On top of this, you need to add notary fees, fee for home inspection before purchase, certificate of location (if the seller does not pay for one).
And don’t forget about home insurance.
Is it in good shape?
Before making a purchase, you need to know if the cottage you covet requires a lot of work.
Repairs that affect the septic tank, foundation or water supply could easily drain your wallet.
During a home inspection, you will get a better idea of the most pressing renos that need to be done.
The cost of getting to your cottage
You should also consider transportation costs when thinking after buying a cottage.
What is access like during winter? Who pays for snow removal? If it’s you, add that expense to your maintenance budget.
And if you sell your cottage?
As this is a secondary residence, you will have to pay a capital gains tax on any profit you make when selling your cottage.
It is wise to consult a financial planner to learn about options available to you.