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A guide to buying a second home in Ontario

A second home in Ontario can be a good vacation spot for your family or an income opportunity as a rental property. If you’re thinking of buying a second home in Ontario, equip yourself with the knowledge of the procedure and how to prepare your finances.

What is a second home? 

A second home is exactly what it describes: an additional property under the same owner who lives in the house, even if it’s only during portions of the year. Common examples of second homes include vacation homes in warmer regions or other parts of the country. The main characteristic of second homes is that you, the owner, are the primary resident.

A family moving into a new home

Why Canadians buy a second home in Ontario 

Many Canadians get another house, but most have similar reasons. The main two reasons to buy a second home are the following.  

  • Vacation property—getting away from the rush of daily life to a cozy cabin is a common way for people in Canada to spend their summers. Whether you are a resident of Ontario or from another province, Ontario is a fun place to spend your resting months. Most owners let travellers reside at the property while in their primary residence.  
  • Generational home—some people acquire a second property to pass down to their descendants. The house can be a regular gathering place or where they live.

How to buy a second home in Ontario 

Since you’re familiar with buying property for the first time, getting a second property will have a similar process. At major financial institutions, they’ll look at your financial situation and determine if you are secure enough to afford another house. A few of their criteria include the following.  

  • Sufficient down payment—second homes require a larger down payment than your first home or principal residence.  
  • Good credit score—the minimum credit score to qualify for a second mortgage is 640 at major financial institutions. The higher it is, the better your chances of getting approved and getting a lower interest rate.  
  • Acceptable debt-to-income (DTI) ratio—to be approved for a mortgage loan, having a DTI under 40% is ideal.  
  • Mortgage stress test qualification—providing a down payment is not always enough. Financial institutions may have to verify your finances to see if you can handle another mortgage. 

Alpine Credits offers home equity loans you can use as a down payment for a second piece of property. If you have lived in your primary home for a significant amount of time, you’ve built sufficient equity, and you can access funds as a lump sum to use as a down payment towards a second home.

Steps to get a second property in Ontario 

The traditional procedure for getting a mortgage for your second property follows the next few steps.  

  1. Determine your budget—look through your financial obligations to determine how much you can afford each month. The final calculation will help you set an overall budget for a house as well. 
  2. Get preapproval—mortgage preapprovals will predict the housing prices you can afford and may also help you secure a house more quickly.  
  3. Bid on a house—since buying a home in Canada requires bidding, give your offer to the property you’re interested in.  
  4. Apply with a lender of your choice—most lenders let you apply online for a mortgage but will allow for calls or in-person meetings. Be ready to provide the documents they require.

Three things to consider before buying a second home in Ontario

Knowing the process of purchasing a second home is as important as knowing what factors to consider before searching for your ideal second home.  

  • The reason for buying an additional property—as long as you have a clear purpose for your second home, financial planning will be a smoother process. 
  • The second home’s location—where the house has to align with your purpose for the property. If it’s your vacation home that you want to rent when you’re not using it, consider the comfort and convenience of your temporary tenants.  
  • Your financial situation—having an additional house is an exciting step in your financial journey but also requires proper budgeting. Examine your financial situation, ensuring you can maintain monthly payments towards insurance, mortgage payments, and property taxes before buying another house.  

Conclusion: working capital loans from your home equity

Providing a down payment for an additional home can be challenging, so many Canadians turn to alternative lenders for a solution.  

Your home’s equity can be accessed as a form of cash, called a home equity loan. If you have paid down at least 25% of your property’s value, you are eligible for a home equity loan in Ontario from Alpine Credits. Home equity loans can have high value, which may allow you to make a down payment towards your second home.   

Contact a member of Alpine Credits’ Financial Solutions Specialist; they are experts in home equity loans and can answer your questions about home equity loans and other aspects such as interest rates. As long as you own your home, you can be approved.

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Frequently asked questions

With average housing prices over $500,000 in Ontario, the minimum down payment will be $25,000. If the house you’re buying is $1.2 million, you must make a down payment of 5% of the first $500,000 and 10% of the remaining $700,000, bringing the total to $95,000. The down payment structure is 5% on the first $500K, 10% on the portion from $500K to $999K, and you must pay 20% down if the property value exceeds $1 million.

Usually, mortgage rates are higher when buying additional properties. However, the market conditions are a factor in determining the final rate.