Buying a second home: How it works in Canada


If you are able to purchase the entire property without borrowing any money, the process is fairly straightforward. However, if you expect to apply for a second mortgage, the lender will need to assess your financial profile. They will look at your income, your gross debt service (GDS) and total debt service (TDS) ratio, your credit score and other factors to determine if you qualify. Some lenders will allow a portion of the rental income from your future property to be counted into your income, increasing the amount you can borrow.

Depending on your profile, as well as current market interest rates and other factors, an interest rate will be shown on your mortgage. This interest rate will have a huge impact on the overall affordability of your new home, so it’s a good idea to compare offers and shop for the best mortgage rate you can find.

Once you are in your new home, don’t forget that you may be able to claim certain expenses for income tax purposes. Every piece helps!

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How to finance the purchase of a second home

There are many great ways to save for buying real estate. Many first-time homebuyers use their own savings and investments, government programs such as a homebuyer’s plan or first-time homebuyer incentive, a financial gift from a family member—or, in many cases, a combination of the three.

Existing real estate owners have another option - they can finance the purchase of additional real estate using the equity in their existing homes. Essentially, the buyer borrows money for equity in his property, using the property itself as collateral.

There are various ways to buy a second, third, or fourth property using equity, including:

Each of these financial products and services has its own qualifying criteria, pros and cons. But in each case, you will need more than 20% of the equity in your existing property; Lenders will not allow you to borrow more than 80% of the value of your current home. Read more about using equity to finance a property purchase: How to use equity to buy a second home.