Buying a Second Home in Canada: How it Works

Written by Bloom Investment Counsel, Inc. on February 19, 2024. Posted in Life Events.

Purchases of second homes in Canada have been increasing over recent years with more than 10% of Canadians now owning a second home.

However, there are distinguishing criteria for your second real estate property to qualify as your second home rather than an income property which is a property used for the sole benefit of generating additional income such as a rental property.

What Qualifies as a Second Home?

A second home is defined as a real estate property that is owner-occupied. This means that the owner lives in it at least part of the time. It can be a cottage, a vacation home, or a weekday residence (like a condo) for someone who commutes to work in a city for part of the week.

It can be a home for other members of your family, such as your parents or even your children who may be going to school in the area.

For a second real estate property to qualify as a second home and not an income property you or a family member must occupy it for at least 14 days a year, while you still spend the majority of your time at your primary residence.

A multi-unit residence can qualify as a second home as long as you occupy one of the units you can rent out the others.

You are also allowed to rent out your second home for part of the year without it being considered an income property, as long as you live in the home a minimum of 10% of the days that the home is rented (or a minimum of 14 days as above — whichever is greater).

Reasons to Purchase a Second Home

There are many reasons why you may want to buy a second home, including:

As a Long Term Investment
To become your residence on your retirement or even prior to then.
As a vacation home
For your children to live in while attending university/college (rather than having to pay rent for four or more years).
To provide additional income from renting the home out when you are not using it (but make sure to understand occupancy requirements).

Factors to Consider Before Buying a Second Home

Your Financial Situation

Do you have the savings or primary residence equity to cover the down payment on a second home? Do you have excess savings for emergency repairs to a second home? You should not commit all your excess savings to a down payment.

The Time Commitment

A second home requires additional time for regular maintenance and for emergency repairs. If you are not able to commit the time yourself, can you afford to pay for maintenance services (especially if the second home is far away)?

Your Income Stability

Do you have a secure stream of income from employment or a business? You may have to cover two mortgages for many years.

Your Time Horizon

Will you be able to maintain ownership of the second home long enough to profit from selling it in the future? If you need to sell it in the short term, the property value may not have increased enough to cover the closing costs of the initial purchase.

Financing a Second Home

Already having a primary residence, you are likely familiar with the financing requirements of a home purchase. They are much the same for the purchase of a second home.

You must be able to qualify for a mortgage.
You will most likely require a good credit score.
You must have a debt-to-income ratio that is acceptable to the lender.

Financing is usually more accessible for a second home than for an income property owing to the uncertainty of rental income.

Affordability Tips for Buying a Second Home

There are some financing advantages when buying a second home relative to your primary home.

You can use the equity in your primary residence to help fund the purchase of your second home.
In Ontario you can qualify for the Insured Second Home Mortgage Program. If you qualify you can pay as little as 5% down if the property is occupied by a family member going to college or university. You cannot charge the family member rent and it must be accessible all year round.

Can you Afford a Second Home?

Unless you can purchase the second home outright, you should have a mortgage professional or financial professional review your financial circumstances to determine if you can comfortably take on the expense of a second home.

This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.