When you have this type of property, most of the “A” mortgage lending programs will not provide seasonal vacation home mortgage financing and the ones that do typically will fall in the 60% to 70% loan to value range, depending on the location and property itself.
So what do you do if you have a seasonal property lined up but only have 20% to down on the purchase?
Part of the answer will relate to what your long terms plans are going to be.
Under one scenario, you may be looking to upgrade the property so that it be could be categorized as 4 seasons at which time standard mortgage programs that offer up to 80% on refinancing applications could be accessed. A bridge loan in the form of a second mortgage can provide you with the additional capital to acquire the home and allow for the period necessary for making the improvements.
If the cottage is to remain seasonal, then you’re going to need a second mortgage source (typically provided by the vendor) to cover off the amount that the first mortgage holder is unable to provide. Keep in mind that under both of these scenarios, the debt servicing requirements for both the first and second mortgage are going to have to collectively work for the first mortgage holder.
Another option would be to look at a 80% private first mortgage to acquire the property, make the improvements to get it to 4 season status, and then refinance into a conventional mortgage at 80% loan to value. This option is going to cost you a bit more in interest, but if the time period to make the necessary upgrades is short, the incremental financing cost should be minimal.
One of the ways to offset the bridge financing costs is through your negotiations with the seller.
It can be difficult to sell a seasonal vacation home due to the higher down payment, or secondary financing required. Therefore, you may be able to negotiate better purchase terms to close the deal and cover off the additional financing costs you may incur through a private first or second mortgage.
The bottom line is there can be a number of ways to finance the purchase of a seasonal cottage through short term or cottage bridge financing where the objective is to covert the the mortgage financing into a lower cost, longer term debt instrument over time.
If you’re looking at a seasonal cottage acquisition and want to go over the available options, then I suggest that you give me a call and we’ll discuss all the potential scenarios together.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel