Believe it or not, Canadians can buy a vacation or secondary home with as little as 5% down payment. Let us explore how to make your dreams come true with owning your very own Cottage or Vacation home.
There are two main categories with respect to secondary homes, Type A and Type B. Let’s explore these differences and see how each type relates to the lending that can be possible.
Type A: Secondary Home (condo in the city)
For those interested in owning a secondary home in Canada, the Type A program offers some key features:
Down Payment:
- Minimum 5% down payment for properties up to $500,000.
- For properties valued over $500,000 and less than $1,000,000, a 5% down payment is required on the first $500,000, plus an additional 10% down payment on the portion of the home value above $500,000. (for example: $700,000 purchase price = min $45,000 down )
Eligible Properties:
- Maximum of 1 unit.
- Property must be owner-occupied or occupied by an immediate family member.
- New construction must be covered by a Lender-approved New Home Warranty Program.
- Existing resale properties.
Borrower Qualification:
- Standard income and employment verification requirements apply.
- No rental income can be used
Down Payment Sources:
- Qualified home buyers may use various traditional down payment sources, including personal savings, RRSP withdrawal, non-repayable gifts from family or legal relationships, sweat equity, existing home equity, and proceeds from the sale of property.
Property Type Requirements (Type A):
- Foundation must be permanent and installed beyond the frost line.
- Must be zoned and used as residential, rural, or seasonal. Mixed uses or rental pooling are not accepted.
- Property tenure must be freehold or condominium.
- Co-ops or interest ownership are not accepted.
- Must have a kitchen, 3-piece bathroom, bedroom, and common area.
- Remaining economic life must be 25 years.
- Year-round road access on reasonable quality public roads, serviced by the local municipality.
- Privately serviced roads are allowed with a maintenance contract in place.
- Property must be winterized with a permanent heat source.
- Good quality construction with no signs of deferred maintenance.
- Water source: well, municipal serviced, or cistern. Water source must be drinkable. Lake or river water is acceptable with its filtration system.
- Property must have electrical power.
- No adverse influences or neighborhood nuisances.
Type B: Vacation Homes Program (Cottage or rural home)
If you’re considering a vacation home in Canada, the Type B program has its own set of requirements:
Down Payment:
- Minimum 10% down payment.
Eligible Properties (Type B):
- All Type A property requirements apply except for specific differences.
Property Type Requirements (Type B):
- No permanent heat source required.
- Foundation may be floating, sitting on blocks.
- Seasonal road use is acceptable; the road does not need to be plowed in winter.
- Water source needn’t be drinkable, but running water in the home is required.
- Property may be accessible only by boat.
- Holding tanks may be considered if common for the area and meet municipal/provincial requirements (e.g., CSA approved holding tank).
If buying with 20% or more down – You must have a water filtration system installed or existing.
**Cottage properties can be case by case when it comes to lending.
Send us the MLS listing and we can advise on which option your potential property qualifies for.