Second Homes vs. Investment Properties
How to tell if you're buying a "second home" or an "investment property."
Q: When buying a vacation home how do you determine whether it should be classified as a “Second Home” or “Investment Property?”
A: Mainly for mortgage purposes, you need to determine whether you will be using your vacation home as a second home or as an investment property. This makes a big difference in the kind of mortgage you should buy. You must realize that this is only a question for mortgage purchases; how you claim your property on your income taxes is a completely different issue.
| With a “second home loan” you must be able to qualify under the second home';s terms. Generally it means you have to be able to afford it just as you would your first home. Under this loan, there is no consideration for potential rental income. Typically “second home loans” have around the same interest rates as a primary home loan. |
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An “investment property loan” is a mortgage where everyone concerned knows you are buying the property strictly as an investment. Accordingly, certain factors come into play. The bank will want to know the rental history of the property, which will be taken into consideration for your affordability factor. Also, these types of loans are considered by the lender to be higher risk. So the risk for the bank translates into higher interest rates and higher fees for you.
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