The Mortgage Brothers Show

Second home mortgage vs investment property mortgage. What’s the difference?

June 23, 2020 Eddie and Tom Knoell Episode 51
The Mortgage Brothers Show
Second home mortgage vs investment property mortgage. What’s the difference?
Chapters
The Mortgage Brothers Show
Second home mortgage vs investment property mortgage. What’s the difference?
Jun 23, 2020 Episode 51
Eddie and Tom Knoell

Second home mortgage rates vs. investment property mortgage rates

●      Compare rate options

●      Same factors as primary apply (anything additional?)

●      Talk about DTI requirements briefly

Second home financing

●      Second home: one you’ll live in for part of the year, but not full time.

●      Occupancy: part-time occupancy required

●      Second home interest rates: slightly above market

●      Down payment: usually 10% or more

●      Credit score: 640 or higher

Investment property financing

●      Investment property: one you will not live in at all and plan to rent out year-round.

●      Occupancy: not required

●      Investment property loan rates: 0.50% to 0.75% above market

●      Down payment: 15% to 25%

●      Credit score: 640 or higher

Compare to: primary home financing

●      To give you a clear idea of what those benchmarks are, here are the typical lending rules for primary home mortgages:

●      Occupancy: required

●      Interest rates: standard market rates

●      Down-payment: starting at zero percent (with grants)

●      Credit scores: Starting at 500

Why the rules are different

●      The home you live in (your “primary residence”) is seen as the least risky form of real estate. 

●      Of course, borrowers will find different lending standards for different types of property, depending on the lender and the mortgage program. So it’s important to compare loan options before financing a second home.

Can you avoid higher rates?

●      It might be tempting to list your second home as a primary residence, and profit from lower rates or easier qualification. But it’s unwise to do so.

Other FAQs

●      Are you allowed to have overnight rentals?

●      Are there limits regarding how many nights you can rent?

●      How much time must you spend there for it to qualify as a vacation home instead of an investment property?

●      Can you have an accessory dwelling unit?

Show Notes

Second home mortgage rates vs. investment property mortgage rates

●      Compare rate options

●      Same factors as primary apply (anything additional?)

●      Talk about DTI requirements briefly

Second home financing

●      Second home: one you’ll live in for part of the year, but not full time.

●      Occupancy: part-time occupancy required

●      Second home interest rates: slightly above market

●      Down payment: usually 10% or more

●      Credit score: 640 or higher

Investment property financing

●      Investment property: one you will not live in at all and plan to rent out year-round.

●      Occupancy: not required

●      Investment property loan rates: 0.50% to 0.75% above market

●      Down payment: 15% to 25%

●      Credit score: 640 or higher

Compare to: primary home financing

●      To give you a clear idea of what those benchmarks are, here are the typical lending rules for primary home mortgages:

●      Occupancy: required

●      Interest rates: standard market rates

●      Down-payment: starting at zero percent (with grants)

●      Credit scores: Starting at 500

Why the rules are different

●      The home you live in (your “primary residence”) is seen as the least risky form of real estate. 

●      Of course, borrowers will find different lending standards for different types of property, depending on the lender and the mortgage program. So it’s important to compare loan options before financing a second home.

Can you avoid higher rates?

●      It might be tempting to list your second home as a primary residence, and profit from lower rates or easier qualification. But it’s unwise to do so.

Other FAQs

●      Are you allowed to have overnight rentals?

●      Are there limits regarding how many nights you can rent?

●      How much time must you spend there for it to qualify as a vacation home instead of an investment property?

●      Can you have an accessory dwelling unit?