A whole section of your mortgage application is going to be dedicated to determining what type of property you’re going to be buying. Whether this is your first or second home, and what you intend to use the property for will have an effect on your mortgage rates, and the types of mortgage programs that you can qualify for. Answering these questions completely and honestly will help you avoid hiccups in your closing process, and protect you from committing mortgage fraud.
A primary residence is where you will live the majority of the year A person can only have one primary residence at any given time, though they may sometimes share the residence with other people. The best mortgage rates are reserved for primary residence loans and this is the easiest type of financing to qualify for. However, to qualify for a home loan for a primary residence, you must ensure that you meet the occupancy requirements stipulated by the lender based on loan type.
Second/ Vacation Home
A second home, or vacation home, is one that you only plan to occupy for part of the year. The home must meet all the inspection requirements of a primary residence and usually needs to be at least 50 miles from your primary residence in order to qualify as a second/vacation home. Second home mortgages have more stringent lending qualifications, because buying a second home usually means you will be paying two mortgages. Mortgage rates are usually higher for this type of loan as well, since the risk is higher for the lender. If your second home doesn’t meet the lending requirements, such as being too close to your primary residence, it may be classified as an investment property.
An investment property is one that you intend to purchase and then rent out for additional income. This type of mortgage usually carries the highest mortgage rates, because it is the most risky for lenders. Tenants don’t care for a property as well as owners usually do and the inherent financial instability that comes along with finding and keeping renters adds to the risk. An investment property can be located anywhere, from across the country to right next door to you. Investing in property in your home town might get you a better mortgage rate since you’ll be able to reduce some of the risks by keeping an eye on the property yourself.