People usually buy a new house for three purposes. The first one is to move from an old house. The other one is using it as a second home. As for the last purpose, they use the house as an investment.
This time, we are going to learn more about second home vs investment property mortgage. So, you will know what you should do, if you plan to buy a new house for those two purposes.
What is Second Home and Investment Property?
First of all, you should understand the purpose of these two properties types. A second home is a place where you will use to live sometimes for a year.
There are many requirements to call the new house a second home, such as it must be 50 miles away from the main home. As for investment property, you use it to make income.
Whether selling it later or renting it out for continuous income, this house is called investment property. You can get it by using heloc for investment property.
Which One is Better Between Second Home vs Investment Property Mortgage?
Now, let’s see the difference to determine which one is your best choice.
- Mortgage rates – it is practically similar. But, it is higher than the primary home, which is around 0.50%-0.875% higher.
- Down Payment – investment property requires a higher down payment than a second home to compensate for its risk.
- Qualifying Requirements – both of them has higher qualification than a primary home. However, a second home requires a higher credit score (720) than an investment property (700).
- Rental Income – you can use rental income to pay the mortgage for investment property. On the other hand, a second home doesn’t have that kind of mortgage option.
- Expense writes off – you are not allowed to do this for a second home. However, you can do it for investment property (write off mortgage interest, utility bills, and others).
Another thing you should remember, you can’t buy a house as a second home, then turn it into an investment property.
Your lender will consider it as “occupancy fraud”, and you could have a law problem here. You might turn it into an investment property, though, as long as you pay off the entire loan for a second home.
Choosing the best between a second home and investment property is all depending on your purpose.
But, in our opinion, investment property is much more profitable because it generates income for you. So, choose the mortgage type that you need most.