Understanding The Difference In An Investment Property Loan And A Second Home Mortgage

People often get investment properties confused with second homes.

While they seem similar on the surface, these two terms are actually different for both mortgage and tax issues. Understanding the differences between the two is important to determine if a property will qualify for a second home mortgage.

An Investment Property

An investment property is a property that is purchased to earn a profit to allow the owner to take certain tax benefits from owning the property. This profit may just pay off the mortgage, allowing the owner to use the rental or lease funds to eventually pay off the home.

With an investment property, the owner does not use the property as his or her primary residence. Typically, these types of investment property purchases require a significant down payment and may have higher mortgage rates as this is a riskier investment for the lender.

A Second Home

A second home, on the other hand, is used by its owner as a residence during various parts of the year. In most cases, the home cannot be used as a rental property nor a timeshare and cannot be managed by a property management company.

A second home mortgage for a condo, summer home, winter home or vacation property has a lower interest rate and down payment requirement than a mortgage for an investment property.

It is critical for the home buyer to be very clear with the mortgage company about the use of the property used for either an investment or a second home. If there are any questions about the two terms, be sure to clarify with the lender or the mortgage company to avoid any possible issues after the mortgage is completed.

At Guaranteed Rate, we can discuss the requirement for a second home mortgage to ensure you get the right mortgage for your property purchase. To see more, visit us at www.guaranteedrate.com/buying-home/second-home-mortgage

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