What Is Cottage Financing?
More and more families today are seeking a secondary residence, whether to meet special family circumstances or simply to fulfill the desire for a vacation or leisure property. Cottage financing could be just the help you need.
Unlike traditional financing for which a homebuyer uses the equity from their principal residence to purchase a second property, the financing under a cottage financing plan is fully secured by the second property.
If you’ve found your dream property, you’ll likely be asked questions from your financial institution and legal team regarding items such as seasonal access roads, potable water sample, surveys, septic system, etc. Additional considerations include:
- Electrical source
- Heating source
- Year-round access
- Seasonal property
- Rental options
- Island property
If your bank won’t offer the proper financing, you still have options. Lending criteria has changed substantially in the last few years for a cottage mortgage. In the past, borrowers were required to arrange at least 25% of their own funds to put towards the property for the down payment. If 25% was not financially feasible, there was the option of refinancing your principal residence up to 80% to pay for the cottage – or at least come up with the down payment.
Today, lending institutions are allowing clients to finance secondary properties up to 95%. This will allow you to have that waterfront property or secondary home now rather than later. Cottage properties can be financed up to 90%.
What is the difference between secondary homes and vacation/cottage properties? In most cases, they are the same but to a lender there are a few distinct characteristics between the two that will allow the lender to decide if they will lend 95% or 90%.