Many owners wonder whether their property should be classified as a “second home” or an “investment property”. The importance of this distinction is mainly for mortgage purposes because it makes a big difference in the kind of mortgage you should buy. This is only a question for mortgage purchases; how you claim your property on your income taxes is a completely different issue.

If you own a “second home” you must be able to qualify under the second home's loan 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.

An “investment property” qualifies for a mortgage in which everyone concerned knows you are buying a vacation home 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.

What advice do you have for other owners about buying mortgages for vacation rental homes?

Financing Options for Vacation Rental Homes How will you use your vacation home—as a second home or as an investment property? Mortgages for Vacation Rental Homes Questions to ask yourself when getting a mortgage to finance a vacation rental property. Christine on the Benefits of Real Estate Investing Real estate very rarely loses in the long term. How to Start a Vacation Rental Business Questions to ask yourself when making the decision to start renting your vacation home and running a vacation rental business.

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