Tag: buying a cottage

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New policy allows B.C. buyers three days to back out of a sale

Photo by Shutterstock/EB Adventure Photography

As of January 3, British Columbia is requiring a three-day “cooling off” period for real estate transactions after the buyer has signed a contract.

The B.C. government introduced the new policy in response to the staggering real estate demand seen throughout 2020 and 2021. To stay competitive, buyers were omitting home inspections and other requirements from their offers. The three-day period should provide buyers with extra time to complete home inspections and arrange financing, the government said in a statement.

“Lack of time for buyers to complete due diligence can exacerbate risk or be used to hide property defects that otherwise may have been discovered,” said housing analyst Leo Spalteholz, in the statement. “Though the market has cooled dramatically in recent months, it’s good to proactively put buyer protections in place.”

The buyer can back out of the sale at any time during the three-day period, which doesn’t include weekends or holidays. If the buyer does back out, they’re required to pay the seller 0.25 per cent of the purchase price. This cancellation fee is meant to prevent buyers from placing offers on multiple properties and then backing out last minute. Prior to the new policy, if a buyer backed out after signing a purchase agreement, they could be sued by the seller for money lost on the sale of the home.

The three-day period applies to almost all real estate transactions, including detached homes, townhouses, condos, and cottages. The only exemptions are real estate on leased land, real estate bought at auction, or real estate bought under a court order. Otherwise, the cooling off period is mandatory and can’t be waived.

But with changes to the market, experts are questioning whether the new policy will have any impact.

After hitting a peak in 2021, the province’s real estate market has seen significant drops in recent months. The B.C. Real Estate Association reported 4,512 sales this past November, a 50 per cent decrease from last year. And prices are trending downwards. In November 2021, the average B.C. home price was $992,245. In November 2022, it was $906,785.

This drop in competition is what’s allowing buyers to include home inspections once again in their offers, not the addition of three extra days, said B.C. Real Estate Association CEO Trevor Koot.

“Anybody that’s bought a house in the last 10 years can tell you, you can’t get an appraisal or an inspection done within three days of an accepted offer. The resources are just not there,” he said. “It’s our concern that it then provides a false sense of security to buyers in a heated market, that they go in thinking, ‘Oh, I’ve got time to do my due diligence,’ when really, what realtors will suggest, is that due diligence is done in advance.”

There’s also concern that the three-day policy puts sellers at a disadvantage. “Very often sellers are buyers themselves,” Koot said. “They’ve got a purchase going on that they’re going to be moving into, and all of a sudden, for three days, they have uncertainty. They don’t necessarily know whether the buyer will follow through.”

When the government introduced the three-day policy in 2021, the B.C. Real Estate Association responded by creating a list of 34 recommendations they felt could help improve the province’s real estate market. Koot said the association worked closely with the B.C. Financial Services Authority (BCFSA), the industry’s governing body, to develop the list. But when the list was passed on to the Minister of Finance, it was ignored.

This is where the government dropped the ball, Koot said. Rather than a three-day cooling off period, the B.C. Real Estate Association had proposed a five-day pre-offer period. This would require all listings to advertise for five days before accepting an offer. The five mandatory days would prevent bully offers where buyers swoop in with aggressive bids, telling sellers they only have a few hours to respond.

“That disrupts everything,” Koot said. “It changes the dynamic, it creates pressure, and it pushes the market into an unhealthy environment.”

A five-day pre-offer period would prevent bully offers and provide buyers with time to assemble their bids without leaving sellers in the dark for three days.

“We shouldn’t have to implement policy and adhere to new rules that don’t have any relevance and impact,” Koot said. “We need policy that’s based on good information, good data, and good research.”

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Buy the Way: This couple stretched their budget after a difficult medical diagnosis

Photo courtesy Jen Pogue and Warren Sonoda

The search: Toronto couple Jen Pogue and Warren Sonoda had been saving to buy property downtown. It had taken years—working in the film industry means that their income comes in on a job-to-job basis. Then, in early 2021, Jen was diagnosed with an incurable form of stage 4 metastatic triple-negative breast cancer. “With a diagnosis like that, it changes your priorities,” says Warren. It accelerated their property hunt, but the couple wasn’t impressed with what $500,000-$600,000 afforded them in the city. So, they expanded their search to cottage country. That summer, while renting on Lake Kennisis, Ont., they found a riverfront, three-season, A-frame for $499,000. “We offered $570,000 thinking, that’s competitive,” says Warren. It wasn’t—the property sold for $830,000.

The couple enlisted the help of realtor Carl Laudan, a former colleague. “Having someone who was a friend and a former filmmaker was a game-changer for us,” says Warren. “He understood what we needed and our situation, specifically as film people.” One night, Warren, who had become something of a realtor.ca savant, found a 1,100 sq. ft., three-bedroom cottage on Cordova Lake, Ont., listed at $614,000. Upon visiting the place, it felt right immediately. “We looked at each other and said, ‘okay, how do we make this work?’ ” says Jen.

The compromise: Comparable cottages in the area were going for $800,000—and competition was fierce. “On bid night, I was sweating out of places I didn’t know I could sweat out of,” says Jen. In a final push, the couple made an unconditional offer, and Jen wrote a letter to the sellers describing why they wanted the place. It worked— they got it for $777,000. Jen and Warren faced an additional hurdle to close. Because of their variable income, a traditional mortgage wasn’t an option. They secured financing through a B-Lender (an alternative lender, such as a non-traditional bank or a credit union) and by putting 35 per cent down.

the sunroom at Jen Pogue and Warren Sonoda's cottage
Photo courtesy Jen Pogue and Warren Sonoda

The silver lining: “Early on in my diagnosis, I learned to invent a safe, happy place in my mind that I could go to during anxious times,” says Jen. “Mine was immediately and vividly a cottage.” A year on, the couple still feel like the budget stretch was worth it. “When we bought the cottage, I didn’t know if I’d get to see what the summer sun looked like there,” says Jen. “The thought of dying before I had a chance to spend the money I had worked so hard for on something I loved is definitely what propelled me to go all in on our cottage.”

Broker advice: Mortgage strategies for freelancers

Having a variable income is common, and it won’t preclude you from applying for a cottage mortgage. “Anytime there’s a variance, lenders want to see an average of the last two years,” says Andrew Thake, a mortgage broker in Ottawa. If your average isn’t high enough, a broker can help you put together a financial plan. If you’re planning to buy in the next two years, “we could structure your tax filings around that purchase,” says Thake. That may mean not writing off as many expenses, but it will show the lender that you have the income. Plus, you can be saving and looking for a cottage simultaneously, even if you aren’t pre-approved yet. Mortgage brokers can also help you survey alternative lending (B-Lending) or private lending (C-Lending), in addition to exploring the best rates across traditional banks. “We know which lenders are going to be the right fit,” says Thake. And even if you start with an alternative lender, you’re not locked into that model. “We can help you even after you own the cottage to get you back to a traditional lender.”

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Buy the Way: This couple snagged a bargain by buying land through an estate sale

Photo courtesy Evan Timusk

The search: After five years of looking for a wilderness retreat, Sault Ste. Marie-based couple Evan Timusk and Jenn Vosper were beginning to lose hope. They had budgeted up to $80,000 for an isolated property surrounded by Crown land, ideally with water access. Mature forest was another objective that further pigeonholed their search. “It seems like most people clear the trees before they sell the land,” says Evan. “We were getting tired of looking at saplings and skidder trails.”

The compromise: In October 2019, they received a surprise tip on a remote, 76-acre parcel located in the headwaters of the Thessalon River, 40 km north of Bruce Mines, Ont. The former mining claim property hadn’t been visited by the family in more than 50 years and was about to be offloaded in an estate sale. Sensing a great opportunity, the couple bushwhacked there by GPS and discovered old-growth pine, rugged hills, and a clearwater river with gravel shores. “We instantly fell in love,” says Jenn.

Evan and Jenn hustled to make a bid before the property was listed. They offered $32,000, hedging that difficult access would dissuade competition. The family countered at $36,000, and the couple accepted. The deal closed after an eight-month wait while the estate was settled in court, which Evan says is normal for this type of purchase.

The silver lining: Evan and Jenn decided to build their own cabin, settling on a 16-by-20-foot structure using locally harvested (and milled by hand) rafters on stick-framed and insulated walls. They found trailer-loads of rough cut lumber on Kijiji and Facebook Marketplace, along with windows and a stove for a sauna. (Building in an unorganized township allowed the couple to bypass graded lumber.) Total material costs— enough for a cabin, sauna, and shed— tallied $24,000.

Photo courtesy Evan Timusk

After making six weeks of concerted effort and hauling endless loads of materials to the building site, the cabin took shape. By first snow, they’d framed and sheathed the cabin and added a steel roof. The couple plan to finish the interior this year, with the goal of being able to relax and enjoy the place in 2023. “There was still a bit of uncertainty while we waited for the legal proceedings, especially during the pandemic,” says Jenn. “It’s been a great experience to work together on such a lengthy project. Every new step now feels like a victory.”

Owner advice: How to navigate an estate sale

Evan and Jenn admit they got lucky in many ways. For starters, pre-pandemic prices for recreational land in northern Ontario’s Algoma district typically ran $1,000 per acre, and they’ve surged since. It also isn’t easy to find an estate sale. The couple cast a wide net by leveraging contacts in real estate offices and speaking with agents who specialized in their target area. Finally, they made an informed offer: being aware of the remoteness of the property, the difficult access, and the fact that “no one in the family had likely stepped foot there and had no attachment to the place” enabled them to score a lowball deal, Evan says.

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Market outlook: What fall brings for Ontario’s cottage country real estate market

While the cottage real estate market was hot over the summer, literally and figuratively, it’s expected to cool down in the coming fall months, according to Re/Max’s 2022 Fall Real Estate Market Outlook. But you can still expect a strong market, says Rick Laferriere, a Re/Max sales representative based in Barrie, Ont.  

What buyers and sellers can expect for the fall 2022 cottage real estate market

Based on his observations, Laferriere notes that there are many buyers, but not enough properties. He estimates there’s been a 30 per cent drop in the number of available properties compared to the summer. 

This means that for those looking to sell their cottages, Laferriere says you’re in a strong position to do so. Besides, spring and fall are prime months for selling; while owners typically devote other months to preparing their cottages for sale or rent. He recommends sellers work with a local real estate company familiar with the area’s values and prices. “If you overprice something in today’s market, it won’t sell.” Even if you’re not ready to sell this year, Laferriere recommends owners take photos of their cottages now against the fall foliage, rather than waiting until the winter months when their lawns are covered in ice or snow. 

In May, Re/Max forecasted average cabin and cottage prices in recreational markets would rise by 20 per cent for the remainder of the year. The report found around 40 per cent of Canadians living in recreational markets, such as the Kawarthas and Southern Georgian Bay, are drawn to its affordable pricing. But the recreational market in other parts of Ontario could look different depending on how high interest rates go. (The Bank of Canada has two more policy rate announcements left in 2022, one on October 26 and the last on December 7.) 

Ontario cottage regions with the biggest and lowest price jumps in 2021

The Muskoka cottage market is still hot, Peterborough cools off

There were two cottage-country areas of note in the fall Re/Max report: Muskoka remains an outlier and affordability has taken a hit in Peterborough. Muskoka region is still expected to experience a five per cent increase in average prices this fall. Over in Peterborough, interest rate hikes and mortgage stress tests may have finally put a damper on the market. The area is expected to see a seven per cent decrease in average sale price for residential and waterfront properties in the next few months.

Will cottage prices go down in Ontario?

If you’re in the market for a cottage, Laferriere says patience is key. With inventory low and prices high, it’ll take time to find a property that is in your price range and one that you actually like. According to Laferriere, a cottage on Lake Simcoe, Ont., costs an average of $1.9 million. “There hasn’t been much change in that price.” Even a waterfront condo in the Lake Simcoe area can cost an average of $790,000. 

On the other hand, prices for cottages in areas with weeds or the water nearby is silty have dropped by about 20 per cent from the summer. “Don’t settle for something just because that’s what’s available on the market,” he adds. 

Ultimately, the availability of properties can lead to major swings in the recreational market. Laferriere says availability can shift a buyer’s market to a seller’s market or a seller’s market to a buyer’s market.

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RBC predicts recession could hit early next year. Here’s who will be most affected

Photo by Shutterstock/JHVEPhoto

The Royal Bank of Canada (RBC) has bumped up its recession prediction. Previously, the bank suggested that the Canadian economy might experience a moderate contraction in 2023. But in a report published on October 12, experts are now saying that Canadians should expect the recession to hit in the first quarter of the new year.

The exact date remains vague as experts have difficulty nailing down when a country enters a recession. Most define it as two consecutive quarters of declining gross domestic product. A more obvious sign is a surge in unemployment.

But what does a recession mean for cottage owners? According to Claire Fan, an RBC economist and one of the authors of the report, it could make owning a cottage more expensive.

Canada’s inflation rate remains aggressively high, sitting at seven per cent. This means that demand is still outpacing supply. The Bank of Canada is working to lower inflation to two per cent by raising interest rates. On September 7, the bank raised its policy interest rate to 3.25 per cent.

This makes it more expensive for Canadians to borrow money, including cottage mortgages. Whether a cottager’s mortgage payments will be impacted during the recession depends on the type of mortgage they’ve taken out, Fan says.

“A fixed-rate mortgage would see a much smaller impact from rising interest rates than a variable mortgage,” she says. This is because a fixed-rate mortgage is locked in for a certain number of years at a set interest rate, keeping monthly payments consistent. Whereas the monthly payments for a variable mortgage fluctuate with the Bank of Canada’s interest rates. However, a cottager with a fixed-rate mortgage could see a significant jump in their payments if their contract comes up for renewal when interest rates are still high.

Presently, there are no signs of interest rates going down. RBC says it expects the Bank of Canada to raise its policy interest rate to four per cent before the end of the year as it continues to fight inflation.

The rising interest rates are having a cooling effect on Canada’s real estate market, including cottages. After the cottage real estate boom of 2020 and 2021, high mortgage rates are starting to slow sales.

According to RBC, property resale across Canada has dropped by 36 per cent since February. Despite the drop, cottage prices remain similar to their 2021 levels. But RBC says it expects the nationwide benchmark property price to drop 14 per cent by next spring. This could make it a good time to buy a cottage, if you can qualify for a mortgage.

Besides higher mortgage rates and a slower real estate market, a recession could also make day-to-day purchases more expensive for cottagers. Fan says the high inflation rate is putting price pressure on everyday goods, such as food and gas. If it costs $100 in gas to drive to the cottage, owners may reconsider the trip.

Plus, RBC says that between interest and inflation rates, the average household’s purchasing power is expected to decline by $3,000 in 2023. Purchasing power is the amount of goods and services a household can buy based on their income. “If a household buys the same things again next year, how much more would it cost? And if their debt levels stay fixed at where they are today, how much more could they be expected to pay for those liabilities?” Fan says. To calculate this decline in purchasing power, RBC looks at the inflation forecast and the average household’s gross disposable income.

Another recession issue cottage owners need to be aware of is job loss. RBC predicts that the jobless rate will reach seven per cent by the end of 2023. If a cottage owner lost their job, it could make it difficult to afford mortgage payments. However, thanks to an excess of job openings caused by the pandemic, RBC expects job loss to be moderate in 2023 compared to past recessions.

All this to say, the recession won’t be distributed equally, leaving some cottagers unaffected. “This will weigh most heavily on Canadians at the lower end of the wealth spectrum, particularly those whose disposable income has faded alongside pandemic support,” RBC says.

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Cottage Q&A: Should I buy a cottage during a recession?

Photo by YAKOBCHUK VIACHESLAV/Shutterstock

Predictions of a coming recession have been thrown around a lot lately. Most experts say  Canada will be hit in 2023. To many Canadians, though, the Bank of Canada’s aggressive interest rate hikes, record-high inflation, and the current cost of living crisis make the recession feel like it’s already here.

For potential buyers looking to wade into the cottage real estate market, talk of a recession could make you second guess your choice. What will this do to the market? Is it actually a good time to buy? Before you panic, take a read through our guide. We’ll break down everything you need to know about buying a cottage during a recession.

What is a recession?

Even economists have trouble pinning down exactly when a country slips into a recession. The rough definition is that a country has entered a recession when it experiences two consecutive quarters of negative GDP growth. GDP increases when a country has a strong, productive labour force. That’s why a recession is often marked by high levels of unemployment.

Currently, the economy is coming off a high from the COVID-19 pandemic. While certain industries did suffer, demand in many, such as the cottage real estate market, skyrocketed. Thanks to low-interest rates and high savings, people were looking to spend. That, however, resulted in a high inflation rate and increased interest rates. These two factors lead to another recession marker: low spend.

How would a recession impact cottage prices?

Where they stand now, cottage prices remain high, says Haliburton realtor Shirley Rule. “In August, in Haliburton, the prices were actually up from a year ago, quite a bit. Now, the number of properties for sale is down by 40 per cent, but the sale prices were up,” she says. “And September seems to be holding its own compared to last September.”

According to Royal LePage’s 2022 Recreational Property Report, the average price of a waterfront property in Canada is expected to increase by 13 per cent this year to $640,710. Rule adds that despite the drop in sales volume, she’s still seeing demand, with multiple offers being placed on well-priced cottages with appealing shorelines that don’t need too many renovations.

This is a good sign that the market isn’t collapsing. But it still needs to be taken into consideration that cottages are a discretionary purchase. If a recession hit, the financial strain would likely cause sales volume to drop further and leave properties sitting on the market for longer. If this happened, it’s possible prices would start dropping to ensure the properties continued to sell.

But Rule points out that, unlike homes, there are only so many waterfront properties available at a given time. The limited supply could prevent a significant price drop. “There’s always going to be people wanting them at some point,” she says.

What are the pros of buying a cottage during a recession?

The pandemic brought a sellers market to cottage country. Not being able to vacation abroad, people started buying cottages as a way to escape urban centres. This increase in demand limited the supply of cottages available, driving up prices. According to Royal LePage, in 2021, the average price of a waterfront property jumped by 21.5 per cent.

But as borders have reopened and the Bank of Canada continues to hike interest rates, affecting mortgages, cottage demand has slowed. Rule says the market is starting to balance out again between buyers and sellers. If a recession hit and demand slowed further, power could shift to the buyer.

With less competition and cottages sitting on the market for longer, it gives you more leverage as a buyer. You can negotiate on price and include conditions with the sale. During the pandemic, demand was so high that buyers risked losing the sale by adding conditions, such as a home inspection. “It’s starting to get back into that now where a lot of our sales are conditional,” Rule says.

Cottage Q&A: What does selling “as is” mean?

She also advises people to be smart with their timing. Look to buy in the fall, Rule says. People who don’t want to take care of a cottage over the winter are looking to offload the property, increasing supply. Plus, summer’s over, so not as many people are thinking about buying a cottage, limiting demand. If you’re set on buying a cottage during a recession, fall is a good time to snag a deal.

What are the cons of buying a cottage during a recession?

A recession does, unfortunately, come with cons. Despite having your heart set on buying a cottage, you could experience some form of financial instability, such as losing your job. This kind of instability makes money lenders, such as banks, nervous. They don’t want to risk you defaulting on payments.

That’s why Rule stresses that you need to be certain you’ll qualify for your mortgage before putting in an offer. “The banks will ask for an appraisal. If the appraisal comes in lower than what [you’re] paying for it, then there are going to be issues,” she says. If this happens, the bank is unlikely to loan you more than the appraised value.

Mortgages are also difficult to qualify for right now. Rule says that the high qualifying standards of the current mortgage stress test are a major factor in slowing down sales volume.

Typically, during a recession, the Bank of Canada will lower interest rates to help stimulate the economy, as it did at the beginning of the pandemic. But currently, we’re coming off of a 39-year high inflation rate and the bank’s policy interest rate is sitting at 3.25 per cent, the highest it’s been since 2008. This means you’ll qualify for a lower mortgage amount than you would have a year ago, and your monthly payments will be higher.

There’s a chance that if we enter a recession, the inflation rate may drop and the bank can once again lower interest rates, allowing buyers to get better deals. But as it stands, experts are predicting interest rates to continue going up in the short term.

Regardless of whether we do enter a recession, Rule predicts that the wheels of the cottage real estate market will continue to turn. “There are still buyers out there who are eager to get something,” she says. “But they’re also being very picky about what to get. They want to make sure they’re getting what they want. You can’t blame them.”

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Cottage Q&A: What does selling “as is” mean?

By Chizhevskaya Ekaterina/Shutterstock

My wife and I are looking to buy a cottage. The owners are selling it “as is.” Is this common? And is buying a cottage that’s being sold “as is” a good idea?—Bewildered Buyer

It’s not uncommon. Selling “as is” usually means: what you see is what you’re buying. The owners aren’t prepared to fix any problems discovered during an inspection. But there are different reasons for this language—it’s not always code for reno nightmare. “The term ‘as is’ can be a little ambiguous,” says Judy Forster of Forster Realty in Regina Beach, Sask. It’s typical in an estate sale or in a situation where the bank has foreclosed on a cottage. After all, “if the owners aren’t around, you can’t ask them to fix anything,” says Chris Winney, a broker with Royal LePage ProAlliance Realty in Northbrook, Ont.

15 real estate terms for first-time buyers

Other possibilities: the sellers don’t have the cash to deal with the fixes that the cottage needs, or they suddenly inherited the cottage and have no interest in tackling any renos. Or “as is” may have nothing to do with the condition, says Wayne William Heine, with EdmontonLakeProperty.com in Spruce Grove, Alta. These owners could be using the term to indicate that they want to sell the contents of the cottage too. “Some people say, ‘Hey, I just want to take my personal belongings and walk out of here.’ For buyers, that might be a good thing.” Especially if the owners leave behind a valuable comic book collection or bottles of 70-year-old malt whisky! (What? It could happen.)

A real estate agent’s tips for buying a cottage sight unseen

Still—and this goes for buying any cottage, in any condition—as a buyer, you have to do your due diligence. Get all the necessary inspections—duh—but also gather as much intel about the lot, the area, the lake, and the local politics as you can. Winney’s tips include reading at least three issues of the regional newspaper, visiting the property at different times of the day, and talking to the neighbours. “Almost anything that’s wrong with the cottage is fixable, but the environmental factors aren’t,” she says. “And if someone is putting pressure on you to make a decision, walk away. There are other properties out there.”

Got a question for Cottage Q&A? Send it to answers@cottagelife.com.

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How to successfully budget for a cottage (yes, you can do it!)

Photo by Shutterstock/Billion Photos

So you’re thinking of dipping your toes into cottage ownership. But where to start? Is it the same as buying a house? What’s involved in a cottage mortgage? Are there other fees you need to consider? Don’t worry, as long as you budget appropriately, cottage ownership isn’t a mystery. We spoke with a handful of budgeting experts to outline everything you need to know to financially prepare for owning a cottage.

Figure out what kind of cottage you want

The first step in budgeting for a cottage is narrowing down the type of property you’re interested in. Are you looking for a waterfront cottage or a cabin in the woods? Do you want a four-season place or somewhere only accessible during the summer? What about location? Are you hoping to buy a three-bedroom cottage in the heart of Muskoka or something rustic north of Timmins?

All of these decisions will impact the price. Popular locations, such as Muskoka, will be more expensive. Waterfront will also hike the cost, especially if you’re looking for a sandy shoreline perfect for swimming with good sun exposure. And the more bedrooms and bathrooms, the higher the price tag.

Our experts say that you need to be realistic about what you can afford. You may have your heart set on a $1 million property in the Kawarthas, but does your income allow for that kind of cottage? Take the time to browse through listings or meet with a realtor. This will give you a better idea of what type of properties are available and how much they cost.

Budget for the cost of cottage ownership

If you’re having trouble figuring out how much you should spend on a cottage, our experts suggest looking at your cash flow. Subtract your expenses, including your phone bill, your mortgage payments, even your retirement savings, from your income. Whatever’s left is your cash flow. Do you have an extra $1,000 a month to pay off a $200,000 cottage mortgage?

You also need to factor in the other expenses that come with owning a cottage. As any cottager will tell you, they require constant upkeep and repairs. Plus, you have hydro bills and cottage association fees. Not to mention property taxes, which will go up as your property increases in value. These extra expenses can amount to several thousand dollars each year.

If you want to secure a mortgage for your dream cottage, you’ll need to show that you can afford these expenses.

Securing a mortgage

When you’re applying for a cottage mortgage, it’s all about your debt-to-income ratio, says Andrew Thake, a mortgage broker in Ottawa. This means that to be pre-approved for a mortgage, you need to prove that you pay off your debts on time and that you have enough income to cover future debts.

Lenders are looking for good credit scores, Thake says, somewhere around 680 or higher. “Even if you have $100,000 on your credit cards, that’s fine, as long as you’re paying them on time,” he says.

Savings, on the other hand, won’t do much to sway lenders into giving you a loan. You could have $1 million in your bank account, Thake says, but if you default on your credit card payments, the lender isn’t going to trust you to pay back your mortgage.

Thake adds that if you’re buying a three- or four-season cottage, it’s the same process as securing a mortgage on a house in the city— it requires a five to 10 per cent down payment. If, however, you’re looking at something more remote, like a cottage on an island or a property without running water and electricity, it can be harder to find lenders. When you do find a lender, the down payment will likely be closer to 20 per cent, plus higher interest rates. Take this into consideration when figuring out the type of property you want.

Consider your buying options

You’ve calculated your cash flow, and maybe it isn’t quite enough to cover a second mortgage, plus associated cottage expenses. Don’t fret, there are other options, our experts say. Rather than going in alone, you could split the purchase with a family member or a friend. The plus side of this is you’re only paying for half of everything. It makes cottage ownership much more affordable. The downside is that you’re now having to negotiate weekends and figure out how much each of you is willing to spend on necessary upgrades, like a new dock.

Another option is renting. If you’re the type who likes to travel abroad and you only plan to spend a few weeks at the cottage each year, renting a property could be a more affordable option. You don’t have to worry about mortgage payments or upkeep, and you still get to enjoy the lifestyle. The downside is that you don’t get to go whenever you want, you’re limited to what’s available for rent, and you aren’t making an investment in a property.

If you do have your heart set on buying a cottage, keep prices more affordable by purchasing during the off-season, our experts say. Sure, cottages don’t suddenly go on sale over the fall or winter, but demand does drop off. This means you’re less likely to be caught in a bidding war, and you have more leverage to negotiate conditions with the seller.

Plan for future expenses

Don’t pull the trigger on your cottage purchase too soon. You may have figured out your price range and the type of cottage you want, and maybe you’ve even spoken to a realtor and mortgage broker about your options. But before you buy, take a deep breath and think about the future. Owning a cottage may seem like a dream now, but will it always be?

If you’re a young couple, have you thought about adding kids to the equation? A 2015 report compiled by MoneySense found that raising a child to the age of 18 costs approximately $253,946. Our experts point out that the cost of daycare is often underestimated, ranging from $12,000 to $15,000 per year. And if your kid becomes involved in sports or other activities, are your cottage weekends suddenly replaced with soccer sidelines?

If kids aren’t an issue, another factor to consider is old age. Is the cottage you’re looking at on a hill with steep steps down to the water? How will you navigate that as you get older? If you plan to pass the cottage on to someone, there may be a land transfer tax that needs to be paid. Or if you decide to sell the cottage before you reach old age, you’ll have to factor in capital gains tax on the property’s accrued value. Considering current real estate trends, this could amount to thousands of dollars.

These concerns aren’t meant to scare you off buying a cottage, but they are worth thinking about. Cottage ownership is a rewarding experience, and there are professionals, such as financial planners, realtors, mortgage brokers, and estate lawyers, who can walk you through each detail of the ownership process. But to ensure you don’t get in over your head, plan out your budget before you buy.

Categories
Cottage Life

Everything you need to know to apply for a cottage mortgage

Photo by Shutterstock/G-Stock Studio

So you’re planning to buy a cottage. You’ve probably spent months perusing listings, figuring out what type of property you want, and meeting with realtors. The next step in purchasing your dream cottage is getting pre-approved for a mortgage. This can feel like a daunting process, especially if you’re already paying off a mortgage on your house. To help smooth the way, we’ve assembled all the tips you need to secure a cottage mortgage.

What does a broker look for in a cottage mortgage application?

It’s all about the debt-to-income ratio, says Andrew Thake, a mortgage broker based out of Ottawa. To gain a broker’s confidence, you want to show them that you have a good credit score—typically 680 or higher. To get a good credit score, you need to be paying off your debts on time, including credit cards and other mortgages.

“Even if they had $100,000 on credit cards, that’s fine, as long as they’re paying them on time,” Thake says. “As long as there’s enough income to cover the debt, someone could really have as many debts as they want.”

Savings are a great cushion when taking out a second mortgage, but it won’t do much to sway a broker into approving your application. “Whether you have $10,000 in the bank or $10 million in the bank, that’s nice, but it’s not a heavy application decision-making factor,” Thake says. A broker wants to see that you have the income necessary to cover the mortgage payments and any other outstanding debts.

What type of cottage is it?

Once a broker has pre-approved your mortgage application, they’re going to want to talk about the type of cottage you’re looking for and which lenders would work best for your situation. Traditional lenders, such as banks, like a multi-season place, Thake says. “A three-season or four-season cottage, it’s no different than if someone came and said, ‘I want to buy a condo downtown.’”

These are cottages that could be used as a primary residence with a secure foundation; access from a municipally-maintained road; a permanent heat source, such as a furnace or boiler; and potable running water—this includes a well or water from the lake run through a filtration system. These types of properties typically only require a five to 10 per cent down payment.

On the other hand, a summer-only cottage drastically changes your lending options. Cottages on islands or isolated, rural locations are less appealing to lenders because if you default on your payment, it’s harder for them to resell the property. This includes cottages that don’t have electricity or running water, and aren’t easily accessible by road.

In these circumstances, it’s unlikely a bank will lend you the money, so you may have to turn to a private lender, Thake says. This means a larger down payment (closer to 20 per cent) and higher interest rates (six to nine per cent).

RBC forecasts historic real estate market correction, including cottages

What’s the cottage being used for?

Um…relaxing? This may seem like an odd question, but not everyone buys a cottage to lounge lakeside and take in the surrounding nature. Some buyers may be planning to rent the cottage out, or renovate the property and flip it. These both affect the type of mortgage you’ll need.

If you plan to rent out the cottage, you’ll need to secure a rental property mortgage. This, again, may require a private lender, as opposed to a bank, and typically means a down payment of at least 20 per cent. The interest rate on the mortgage will also be higher. Generally, expect between one to three per cent more interest points on a rental property mortgage than on a standard mortgage.

If you’re renovating the cottage, you should be able to secure a standard mortgage unless the cottage is uninhabitable. In this situation, you’ll need to apply for a construction mortgage or a private mortgage from a private lender, Thake says. This again means a down payment closer to 20 per cent as well as a higher interest rate than a standard mortgage. If you renovate the cottage to the point where it is habitable, you may be able to refinance your mortgage and apply for better terms through a standard mortgage with the bank.

Can you predict the mortgage’s rates and down payment?

Not ready to put in an offer until you know the terms of the mortgage? A broker can help with that. If you’ve settled on the type of property you’re interested in, Thake suggests sending your broker sample listings of desirable cottages.

They don’t have to be cottages you want to submit an offer on. They don’t even have to be cottages in the area you want to buy in, Thake says. But having samples will help your broker secure your mortgage faster when you’re ready to buy.

“It’s a lot easier to have that live property example where we can send it out to a dozen lenders and get some sample terms, like rates and down payment amounts,” Thake says. “That way, when the client does find the place they want, it’s kind of like a clone to what they’ve sent us as the sample.”

How do you finance the mortgage?

When buying a cottage, the down payment for the mortgage doesn’t have to come out of your savings. If you already have a mortgage on your house, you can borrow equity from that mortgage to help pay the down payment. Here’s how Thake explains it:

Say you bought a house for $500,000 and you’ve already paid off $250,000 of that mortgage. That $250,000 that you’ve paid is considered equity that you can borrow from if needed. If you’re buying a $500,000 cottage, you could refinance the mortgage on your house and borrow $100,000 of that $250,000 you’ve paid (you can borrow up to a max of 80 per cent of the property’s value). You can then use that $100,000 for your cottage down payment. Borrowing that $100,000 bumps your house mortgage back up to $350,000, but it brings your cottage mortgage down to $400,000 without depleting your savings.

This may sound complex, but there aren’t a lot of secrets to cottage mortgages, according to Thake. “We really just want to make sure there’s enough debt to cover this new mortgage,” he says, “and if they are looking to borrow the down payment from their existing home, that there’s enough income to carry that as well.”

Buy the Way: A family of three shares a tiny home they can bike to

 

Categories
Cottage Life

Buy the Way: A family of three shares a tiny home they can bike to

Photo courtesy Justine Penner

The search: For Justine and Olivier Penner*, the search for a weekend getaway started with a desire for a little more elbow room. The couple had been renting a two-bedroom apartment in Vancouver since 2011, and in 2018, when their daughter was four years old, they started looking for land that they could enjoy and that would be an investment they could pass along to their daughter.

Most importantly, they didn’t want to spend more than $100,000. “That’s a modest amount, unless you wanted to take on a mortgage,” says Justine. “And both of us are very debt-averse.” Olivier was keen to travel without a car, and so they narrowed their search to the Gulf Islands, which is accessible by ferry after a short bike or bus ride from the city (though they have a car and a cargo e-bike for transport when necessary).

They found a spot that looked ideal: a 1/2-acre plot of land in the woods where they could tent camp, that was a 20-minute walk to local beaches and close to the ferry. And it was potentially within their budget—if they could just get the list price down from $140,000.

The compromise: They researched the history of the land and discovered it had sold for $68,000 the year previous, so they had some hope of bringing the cost down—but unfortunately, their initial offer of $100,000 was quickly declined. But a few months later, Olivier noticed that the land still hadn’t sold. They asked their realtor to re-engage with the seller, and—after rallying a little more money—negotiated a price both sides could live with: $113,000. “I joked with Olivier that we just bought a really expensive camping spot,” says Justine.

The silver lining: Tent camping was the plan for the near future—until they learned their friend, Angela, had built a tiny house on another, more challenging-to-access island. She was hoping to find a place to move it to that was less remote. Local bylaws stated that so long as they kept the wheels on the 16-by-9-foot cabin, the tiny home could legally be “parked” and inhabited for up to 90 days a year as a recreational vehicle—meaning no camping for Justine and Olivier and a closer getaway for Angela and her partner, Daniel. The four of them hammered out a five-year time-share agreement in writing—and they divvied up the $5,000 expense to move the tiny home onto the property (thanks to highway permits and making the cabin road-worthy), along with ongoing maintenance costs. The getaway has been just what the family of three was looking for. “There’s enough room for us to sleep in the loft. We put up little lights, and it’s just naturally cozy,” says Justine.

*All names have been changed

Owner advice: Lessons learned from sharing a tiny home

Cover all the details
The couples spent hours creating what they describe as their “MOU”—Memorandum of Understanding—that lasts for five years. It covers how expenses and time at the place are shared and, perhaps more importantly, what happens if someone pulls out of the agreement early and how they would handle it. At the end of five years, they’ll discuss the arrangement for the tiny home again.

Put it in writing
The group uses Google Docs to track everything. There’s nothing formal that says who gets which weekend—“and I wouldn’t expect anyone to block out the whole summer,” says Justine—but so long as either party doesn’t exceed their allotted 45 days, it’s flexible.

Be prepared for some conflict
“You can never anticipate all possible misunderstandings,” says Justine. Lucky for the group, she’s a skilled mediator, so they’ve quickly dealt with anything that comes up. A group WhatsApp channel keeps communication lines open—and they make sure they get together for dinner at least once a quarter to discuss any issues that arise. “We have a pretty high commitment to each other and the friendship,” she says.

Have you recently purchased a cottage in a unique way? Tell us about it: edit@cottagelife.com

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