Dreaming of a Vacation Home? Here’s What You Need to Know?

If you’re interested in buying a vacation home, there is a lot to consider. A good first step is to think about your 5- and 10-year plans.

Will you get enough use out of it?

Do you have other, more immediate or important financial goals?

What’s the opportunity cost?

If you’re set on the vacation home, but don’t plan on paying cash for the property, the next step will be to plan how to finance it. Here’s what to ask yourself:

• Do you have enough saved for a down payment? A second property could need a downpayment of between 5-20%+. Some factors to consider are whether it’s winterized, mortgage insurance requirements in relation to the purchase price, etc. 
• Can you afford the purchase? Your income will have to be sufficient to take on the additional debt, so consider calculating your debt servicing ratios and seeing how much room you have within your current situation. Use 39% for GDS and 44% for TDS ratios as the maximum to secure funding from a bank.
• Will the location/property be eligible for financing? Remote locations or properties outside Canada may not qualify for a mortgage, so you might need to get creative.
• Will it be owner-occupied or an investment property? Depending on who lives in or uses the dwelling, there will be different mortgage and tax implications.
• If you’re in a good place to move forward with purchasing a vacation home, the next step is selecting a location. A few considerations:
• Current and future development of the area
• Municipal services available
• Transportation to and from your property
• Long-term property value
• Seasonal access issues

Another significant factor in purchasing a vacation home is deciding what will happen to it while you’re not there. Will you rent it out? Will you have a property manager? What’s needed to keep the insurance valid on the property?

Written by: Mike Bohte