For Cottage Mortgage, Vacation Home Mortgage, or Second Home Mortgages, depending what you want to call them, there can be several different mortgage financing scenarios to consider before purchasing a property or refinancing an existing mortgage.
In the context of this discussion, we are only focusing on self use properties and won’t be referring to investment properties, rentals, co-ops, or timeshares.
Similar to a conventional residential mortgage financing, there are both bank or institutional mortgage programs and private mortgage financing options, but there is an added twist with the bank mortgage programs according to different types of “Eligible Property”.
Type A Properties: Require a residential, rural, or seasonal zoning along with a freehold title or condominium title. The property must have a permanent foundation and remaining economic life of at least 25 years and have year round access to a public road system that is serviced by the municipality. Private road access can also be considered if there is a road maintenance agreement in place. The main structure must be build for winter use and possess a permanent heating system from a variety of different heating sources. A water source must be present and can be supplied via the local municipality, property well, or cistern. The water source needs to be drinkable and can come from a lake or river provided there is an acceptable filtration system in place. For most programs, there can be no more than two living units on the property and the property must reside in a well established market area and be representative of other properties in the area.
Type B Properties: One of the main differences with a type B property is that it doesn’t need to be winterized and can be accessed via seasonal roads or by water craft only. Type B properties typically have a one unit maximum as well. Because winterization is not a requirement, no permanent heat source needs to be installed and operational, and the foundation can be of a more temporary nature such as sitting on above ground blocks. While the water supply does not need to be drinkable, there needs to be be running water in the house.
Different programs will call Type B properties cottages and vacation homes and Type A properties secondary homes, but there can be considerable variation in this basic terminology. The most important thing to focus on when seeking this type of mortgage financing is whether or not your existing property or target property fit the Type A or Type B property definition of the lender.
For conventional mortgages, the loan to value amount is 80% on an uninsured bases. For insured mortgages, the Type A properties can be insured up to 95% and the Type B up to 90%.
For institutional mortgages, the maximum mortgage amount is $600,000 to $700,000 for Type A properties, depending on where you live in the country, and $350,000 for Type B. Remember that these are not hard and fast rules and exceptions can be made depending on the property, lender program, etc.
There are no limits on private mortgage financing, although the loan to value will again not likely exceed 80% and higher more amounts will be harder to come by.
For Type A properties, the amortization period can be as long as 35 years, and up to 25 years for Type B. Private mortgage lenders can provide both amortized mortgages with principal repayment and one year interest terms serving more as a bridge loan to provide time for another form of longer term financing to be arranged.
Each lender will have their own unique requirements as well which will also be impacted by the local market and the borrower credit profile.
If you’re considering a cottage or vacation home purchase or would like to refinance an existing mortgage on a secondary home, We suggest that you give us a call so we can quickly assess your situation and provide cottage, vacation home, or secondary home mortgage financing options for your consideration.