When somebody’s applying for mortgage, one of the first questions asked is, "what are you going to use the property for?" However, most buyers don't really know why they are asked such questions. So, is there really a significant difference among these 3 from a loan application perspective?
The answer is...Yes, there is, definitely.
The intent should be clarified upon application because the loan products - interest rates, down payment, fees. etc. - available for a primary home, 2nd home, and investment properties are different. Below is a quick, general summary:
Purpose | Rate | Downpayment | Flexibility | |
|---|---|---|---|---|
Primary | Buyers will live there all year round | Lowest rates | Can be 0% if they qualify to a program with zero downpayment | More loan product options |
Second Home | Will be utilized for vacation purposes | Close to the rates of the Primary home purchase | 10% or higher | Similar to Primary but with higher downpayment and interest rates |
Investment Property | Will be utilized as a financial income source; rental income can also be used as mortgage payment | Higher than the other 2 | Underwriter sees this as risky so more money may be required to be put down as equity. Often 25% | Least flexibility |