Get a Second Property in Ontario

If you are considering investing in a second property in Ontario, it is important to understand the process of obtaining a mortgage. In this article, we will cover everything you need to know about getting a mortgage for a second property in Ontario, from the eligibility criteria to the application process and the documents you need to provide.

Understanding Second Property Mortgages

A second property mortgage is a type of loan that allows you to purchase a second home or investment property. It is different from a primary residence mortgage, which is used to buy your primary residence. Second property mortgages have different eligibility criteria, interest rates, and down payment requirements than primary residence mortgages.

Eligibility Criteria for a Second Property Mortgage

To be eligible for a second property mortgage in Ontario, you must meet certain criteria. These include:

• Having a good credit score: You will need a credit score of at least 680 to qualify for a second property mortgage.
• Demonstrating a good debt-to-income ratio: Your debt-to-income ratio should be no higher than 43%.
• Having a down payment of at least 20%: You will need to provide a down payment of at least 20% of the purchase price of the property.
• Proving that you can afford the payments: You will need to provide proof of income and assets to show that you can afford the mortgage payments.

Types of Second Property Mortgages

There are two types of second property mortgages: conventional mortgages and high-ratio mortgages.

• Conventional mortgages: These mortgages require a down payment of at least 20% of the purchase price of the property. The interest rates on conventional mortgages are generally lower than those on high-ratio mortgages.
• High-ratio mortgages: These mortgages require a down payment of less than 20% of the purchase price of the property. They are insured by the Canada Mortgage and Housing Corporation (CMHC) or other mortgage insurers. The interest rates on high-ratio mortgages are generally higher than those on conventional mortgages.

The Application Process for a Second Property Mortgage

The application process for a second property mortgage is similar to that of a primary residence mortgage. You will need to provide the following documents:

• Proof of income: This includes pay stubs, tax returns, and employment letters.
• Proof of assets: This includes bank statements, investment account statements, and information about any other properties you own.
• Proof of down payment: This includes bank statements showing that you have the necessary funds for the down payment.
• Property information: This includes the purchase price, address, and other details about the property you are purchasing.
• Credit report: Your lender will obtain a credit report to assess your creditworthiness.

Tips for Getting a Second Property Mortgage

• Start with your current lender: If you have a good relationship with your current lender, start by asking them about their second property mortgage options.
• Shop around: Compare the rates and terms of different lenders to find the best deal.
• Consider a mortgage broker: A mortgage broker can help you find the best mortgage options for your needs.
• Get pre-approved: Getting pre-approved for a mortgage can give you an advantage when making an offer on a property.
• Be prepared to provide documentation: Make sure you have all the necessary documents ready before applying for a mortgage.

Conclusion

Investing in a second property can be a great way to build wealth and create a passive income stream. However, getting a mortgage for a second property in Ontario can be a complex process. By understanding the eligibility criteria, types of mortgages, and application process, you can increase your chances of getting approved for a second property mortgage.

FAQs

1. Can I use my home equity to purchase a second property in Ontario?

Yes, you can use your home equity to purchase a second property in Ontario. This is known as a home equity line of credit (HELOC) or a home equity loan. These options allow you to use the equity you have built up in your primary residence as collateral for a loan to buy a second property.

2. What is the difference between a conventional mortgage and a high-ratio mortgage?

A conventional mortgage requires a down payment of at least 20% of the purchase price of the property, while a high-ratio mortgage requires a down payment of less than 20%. High-ratio mortgages are insured by the Canada Mortgage and Housing Corporation (CMHC) or other mortgage insurers, while conventional mortgages are not.

3. How much do I need to put down for a second property mortgage?

You will need to provide a down payment of at least 20% of the purchase price of the property for a conventional mortgage, and a down payment of less than 20% for a high-ratio mortgage.

4. What is the minimum credit score required for a second property mortgage in Ontario?

You will need a credit score of at least 680 to qualify for a second property mortgage in Ontario.

5. Can I rent out my second property?

Yes, you can rent out your second property. However, you will need to ensure that you have the necessary permits and insurance to do so. You may also need to pay taxes on any rental income you receive.