Is buying a second home so different from buying the first? Here are some tips to guide you in your next property purchase.
Planning to Buy a Second Home? Follow These Tips
Planning to purchase a second property? That’s exciting! Whether you are looking for a holiday home, an investment property, or a smaller home, there are many things to consider when buying a second property. Here are some important tips to help you on your journey.
Buy an investment property
Investing in real estate can be an additional source of income, in addition to helping you grow your net worth. What more? However, before making a decision, it would be wise to learn more about the responsibilities inherent in an investment property.
Start by reviewing your finances and asking yourself if you can afford to support an investment property. To help you decide, here’s a guide to what you need:
- A down payment of the purchase price
- Real estate agent’s commission and notary or lawyer’s fees
- Income that can cover your mortgage payments, property taxes, utilities (if applicable), insurance, and repairs
- A budget for maintenance repairs
Buy and sell property
Are you running out of space in your current home, need to move to another city, or simply want a change in scenery? Here are some tips and strategies to help you have a successful buying or selling experience.
Should you buy before you sell or sell before you buy?
Both strategies have advantages and disadvantages. Whether to sell or buy first depends on your financial goals and needs. Take a look at the table below to compare the two options:
Sell your home first
- Obtaining a new mortgage will be easier than a second mortgage
- You won’t have to take on two mortgages at once
- You can apply the proceeds from the sale of your current residence towards the purchase of your new residence
First, buy a new residence
- You have more time to make renovations and improvements to your new home before you move in.
- You can sell your current residence with the mention of “immediate occupancy”.
- You won’t have to worry about not being able to take possession of your new residence before you have to leave your current residence.
- If you’re not sure which option is best for you, seek the help of a real estate broker to make an informed decision.
How to finance your second residence
Before embarking on the purchase of your second home, it is important to take the time to do your research.
Here are some financing options to explore:
- Check the features of your current mortgage.
A portable mortgage allows you to transfer the fixed interest rate, balance, and maturity date of your current loan to your new loan.
- Get a prearranged loan.
Even if you’re already a homeowner, you’ll still need to get a pre-arranged mortgage before you start your search if you want to buy a new home.
You can then use the equity in your current home to determine how much money you have available to buy your next dream home.
- Consider getting a bridge loan.
The bridge loan is used when you buy a new property before selling your current residence. Term financing covers the costs of your two mortgages until the sale of your current property is completed.
Move to a smaller accommodation
Maybe it’s because your children have grown up and left home, or you’re planning to retire and want a less-maintenance residence. Maybe you want to move to a new city instead.
Whatever your reasons for downsizing, here are some solutions to help you get the most out of your home’s accumulated equity:
- Moving from a residence to a condominium has several advantages.
You no longer have to worry about maintaining the property, mowing the lawn, or performing any other chores related to a residence.
On the other hand, you generally have to pay maintenance costs per month. It is, therefore, important to pay attention to these costs when shopping for a condominium.
- Release the funds accumulated thanks to your residence.
Suppose your home is worth a million in today’s market. If you buy a new property, you will have an available balance of about a quarter of a million. This gain can be used as an investment fund to boost your post-retirement finances.
If you are considering this scenario and believe you will have excess funds to invest, consult a financial advisor who can offer you a range of investment options and guide you.
- Moving to a lesser area can decrease your daily expenses and save you money.
Buying a less expensive out-of-town home can cut costs and free up more post-retirement funds. Perhaps you are also thinking of moving to another country for retirement.
Important things to follow when buying a second home:
1. The purchase offer
You must present an offer to purchase to the seller. This offer contains your conditions for the purchase of his property, the most obvious being the price.
The seller may either reject your offer or offer you a new one (the “counter-offer”).
2. The promise to purchase
Once accepted by the seller, the offer to purchase becomes a promise to purchase. The conditions provided for therein can then no longer be subject to negotiation. Signing a promise to purchase does not mean that you are now the owner!
3. Signing the deed of sale
To officially become the owner, you must sign the deed of sale. The signing usually takes place at the notary. It is only then that the transfer of ownership takes place.
Your notary will advise you on the conditions to include in the offer to purchase a house, land, chalet, duplex, condominium, or multiplex. He will also explain the conditions offered by the seller and advise you in your negotiations.
He will also prepare the documents necessary for the transfer of ownership and will ensure the validity of your title deed.
How to prepare for the meeting with your notary?
Information to collect:
- The full name and contact details of the buyers
- The address of the property or its lot number
- Documents relating to the buyers’ civil status (eg marriage certificate, marriage contract
- divorce decree
- The complete offer to purchase
Now that you know some basic tips on buying and selling property, you’ll be able to make more informed choices. You can also contact a mortgage loan specialist for more information and to start a pre-arranged loan application.