MORTGAGES: What is the Difference between a Primary Home, 2nd Home, and an Investment Property?

When somebody‚Äôs 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