When you buy a home and apply for a mortgage, the mortgage lender will evaluate whether it is classified as a primary residence, second home, or investment property. The mortgage terms and loan programs may vary depending on how the subject property is classified.
What is Considered a Second Home?
A second home is a property you purchase with the intent of living in, even if it’s only for a part of the year. This term does not refer to the second property you have ever purchased. The second home requirements for a mortgage may include:
- Property is considered a vacation home
- You must live in the house for part of the year, whether it is a summer or winter home
- The property cannot be rented out or used as a timeshare (there may be exceptions, but you would have to discuss them with your lender)
- Typically, the property must be located at least 50 miles from your primary residence
- You must use the property for your pleasure
What’s an Investment Property?
An investment property is purchased with the intent of generating additional income. Investment property mortgage requirements may include:
- The property must generate another source of income
- You must plan on having tenants and collecting rental income
- The property must be located within 50 miles of your primary residence
- You must plan on selling the property for a profit in the future
- The property is owned but not occupied by the purchaser
If you’re interested in purchasing an investment property, click here to learn more about our loan programs.
What are the Mortgage Rates for a Second Home vs. Investment Property?
Mortgage rates for a second home or investment property may be higher than rates for primary residences. Mortgage lenders may consider these properties as riskier because you may be more willing to default on a second home loan than your primary residence during a time of potential financial hardship. You may even notice that interest rates for investment properties are higher than those for second homes.
Is Buying a Second Home a Good Investment?
Of course, before buying any home, it is essential to make sure that you can afford to purchase the property and make sure the monthly payments fit within your budget. Now maybe a great time to buy another property while mortgage rates are low.
Contact us to learn more about if purchasing a second home or investment property may be the right decision for you.