Are you looking at purchasing a second home or do you want to buy a property to serve as an investment? In both cases, you will need the right loan. Fortunately, you get different options from which to choose depending, not just on your existing financial condition, but also on your individual needs.
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The interest you will need to pay depends on how you plan to use the home you purchase. Typically, a mortgage toward an investment property attracts higher interest than one taken for a second home. So, what differentiates the two?
You may think of a second home as a vacation home, and typically, it should be at least 50 miles from your current residence. Your second home is meant to be only for your use and not be to be rented out when you don’t live there.
When you purchase a home as an investment, it is understood that you may choose not to live there at all. Instead, you are free to rent it out as you like. There are no restrictions on how far an investment property must be from your current residence.
You cannot get mortgage insurance for investment loans, so expect to pay at least 20% of the property’s price as a down payment. If you want to use the property’s rental income to qualify for an investment loan, you will need a minimum of two years of experience in property management.
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If you have built sufficient equity in your existing home, you have the option of using it to purchase a new home. What you have to bear in mind, though, is that the existing home then acts as security toward the new home.
Since loans for second homes and investment properties come with different approval requirements, it is best that you equip yourself with all the required information in advance.
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