cottage building, mortgage questions

Leveraging, renting vs owning, making an investment or buying a home?
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booglehead
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cottage building, mortgage questions

Post by booglehead » 20 Jul 2017 12:30

Hello all, US citizen here, wife is Canadian, we are living in the US and are hoping to build a cottage in PEI

we will likely need to get a mortgage, and will be talking to our bank (current house in states has mortgage through them) but I think they hosed us with the rate at the time we signed with them so will also be shopping around.

what tips do you all have for mortgage shopping across the border and what rates are average?


thanks in advance

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adrian2
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Re: cottage building, mortgage questions

Post by adrian2 » 21 Jul 2017 10:44

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AltaRed
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Re: cottage building, mortgage questions

Post by AltaRed » 21 Jul 2017 11:15

I am wondering if the OP may have difficulty qualifying for a mortgage in Canada.. if no credit rating, no banking, no history.
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DavidR
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Re: cottage building, mortgage questions

Post by DavidR » 21 Jul 2017 11:26

AltaRed wrote:
21 Jul 2017 11:15
I am wondering if the OP may have difficulty qualifying for a mortgage in Canada.. if no credit rating, no banking, no history.
and also construction-financing a build, and a cottage property to boot.

twa2w
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Re: cottage building, mortgage questions

Post by twa2w » 21 Jul 2017 14:57

Rates for cottages are often a little higher than for residential homeowner occupied mortgages. Often 1/4 to 1/2% but depending on competition you may get normal residential rates.

Most Cdn banks have a specific vacation home program and these usually have various restrictions and vary from bank to bank as to minimum size, winterization,time to complete, etc etc. Many branches are not familiar with these programs unless the branch is in cottage country and there are lots of new builds.
Generally these are, minimum Sq footage(800 in some cases) designed and built for year round use and access, must have grid electricity ( not a generator), on permanent foundation, on year round road or access, well or municipal water( no cisterns), proper septic( no holding tank).
Generally the loan to value is lower (65-75%of estimated value)and your money goes into the project first.
You will need proper plans, estimates from builder etc. Self builds are frowned upon.

If you do not meet these(and they vary from bank to bank) then you may be looking at a collateral mortgage with an even higher rate and possible lower loan to value.

There may also be provincial restrictions on foreign ownership and or issues with succession in the US for American citizen. This may mean you may have to put cottage in wifes name. A cottage can be put in a trust but again I doubt there is a branch manager in the maritimes familiar with this.

Don't be discouraged but be prepared for a lot of blank stares and.. 'i don't think so's'.

You may want to look for a credit union or Caisse polulaire as they may be more flexible than the big 5 banks.

Banks do have the ability to check your credit in the USA but this can sometimes take a while. Construction mortgages are rule bound and follow srict guidelines. Make sure your builder is fully aware of exactly what stages he has to have done before an inspection and advance are made by the bank and how long this process takes

I have been out of the game for a few years so memory may not be 100% accurate and programs change so take the above as a very general guideline only.

Good luck. You may also look at a refinance of your existing home( or equity line of credit) which will be easier as far as advances to the builder etc as you can control them. Just ensure the work is done before advancing and ensure you have a solid contract as to how much is advanced and at what stages. Usually there is a hold back from each advance for a period of time for construction liens. This varies from province to province. Ensure you know the rules around this and the builder is aware holdbacks will be done.
Normally anyone who supplies labour or materials to your project can file a lien agsinst your property if they have not been paid within a certain number of days. The holdback protects you to some extent. They only have so many days to file the construction lien.

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Re: cottage building, mortgage questions

Post by brucecohen » 23 Jul 2017 14:17

Be aware that PEI has restrictions on the purchase of land by non-residents. See here.

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