Second Home vs Investment Property: What are the Different Mortgage Requirements?

March 10, 2021 | 3 min read | Owning a home
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When you buy a home and apply for a mortgage, the mortgage company will evaluate whether it is classified as a primary residence, second home, or investment property. The mortgage terms and requirements may vary depending on how the subject property is classified. 

Occupancy Requirements
  • Second Home
    • You must live in the house for part of the year, whether it is a summer or winter home. This will deem the property a vacation home.
    • The property cannot be rented out or used as a timeshare (there may be exceptions, but you would have to discuss with your lender). You must use it for your pleasure. 
    • Typically, the property must be located at least 50 miles from your primary residence.

  • Investment Property
    • You must plan on having tenants and collecting rental income. Therefore, the property is owned but not occupied by the purchaser/borrower. 
    • The property must generate another source of income for you. 
    • 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.
Down Payment Requirements

The down payment requirements for second homes and investment properties are typically higher than that of a primary residence. However, you may be required to have a larger down payment for an investment property than a second home. The required down payment may vary based on the mortgage lender’s estimated risk. Typically, investment properties are deemed riskier than second homes as the borrower may rely on tenant’s income to help cover the mortgage cost. 

Credit Requirements

Having a good credit score is especially important when applying for a second home or investment property mortgage. The mortgage lender will want to see that you have a lower debt-to-income ratio and have successfully managed past debts.  

What are the Mortgage Rates for a Second Home vs. Investment Property?

Mortgage rates for second homes and investment properties may be slightly higher than those for primary residences, as lending on these properties is deemed a little riskier. If you are interested in learning about today’s rates, give us a call

Tips for Buying a Second Home 

Since you will be occupying this home part-time, you want to make sure you create a wants and needs list to help you find the right home. Read more about some house hunting tips that may help you narrow down your search, whether you’re looking to buy a primary residence or second home. 

Is buying a second home a good investment?

First, you must make sure that you can afford to purchase the property and that the monthly mortgage payments fit within your budget. Now maybe a great time to buy a second home while mortgage rates remain low. You may also research the neighborhood to see how home values have changed over the years in that area to gauge a potential return on investment.

Tips on How to Buy Your First Investment Property

Buying an investment property may require you to do some thorough research on the neighborhood, condition of the property, and other associated costs. If you’re looking to invest in real estate, read more about our complete guide to the investment property financing process. Remember to speak with industry professionals or other real estate investors to learn more about their experience and get helpful tips on managing tenants and properties.  

If you or someone you know is looking to purchase a second home or investment property or would like to learn more, please contact us to connect with one of our mortgage specialists!