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Financing on cottages
November 7, 2013 @ 11:17 AM by:

A question I often get asked is how much of a downpayment do you need when buying a cottage.   If you have good credit and can debt service the deal, financing can be obtained at good interest rates with as little as 5% down.

Lenders have divided cottages into Type A and Type B properties.  Here is the difference:

Type A Cottages: Type A is a cottage with year-round access, a winterized home with a permanent heat source and potable running water set on a permanent foundation below frost line. Type A cottages can be mortgaged similar to mortgaging a permanent residence, minimum 5% down payment, fixed and variable terms with eligibility to refinance once equity has built up. Interest rates might be 0.10-0.20% higher than a traditional mortgage mainly because its not ‘owner occupied’ year round. If the down payment is less than 20% an insurer’s premium must be added, similar to a standard mortgage.

Type B Cottages: Type B is a cottage with seasonal access, no permanent heat source yet has running water and sits on a floating foundation (concrete blocks or pilings). Type B cottages can be mortgaged with a minimum 10% down payment, fixed and variable terms as well. Type B cottages are not eligible for refinance at any time and the maximum property value can not exceed $350,000. Interest rates will also be 0.10-0.20% higher than standard fixed rate mortgages. And like type A cottages If the down payment is less than 20% an insurer’s premium must be added.

For properties that would be considered more of a "camp", you are essentially financing the vacant land.   In that case, be prepared to have a downpayment of 40-50% of the purchase price and the willingness to accept higher rates, as many banks and trust companies simply aren't interested in this type of lending

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