When applying for a mortgage loan you will be asked how your property will be used. Let’s take a look at the differences between the 3 occupancy types and how it could affect the final cost of a mortgage.
If you plan to move all your belongings into a new place you’re getting a primary residence. A primary residence qualifies for the lowest minimum down payment and lowest mortgage rate. Why? Because lenders view a primary residence as a low-risk property since homeowners are likely to stay on top of their mortgage payments.
1. Must live in the home for the majority of the year
2. Must be a convenient distance from your job
3. Must live in the home within 60 days of closing
4. If you own the home already and are refinancing, you must be able to prove your residence through documentation such as tax returns and government identification.
Are you considering a vacation home near the beach or a place closer to your job’s second location? In this case, a lender would classify this as a second home. It depends on how you occupy the property (not whether this is the second home you have ever purchased).
A second home will meet these conditions:
1. Must live in the house for some part of the year
2. Must be a reasonable distance from your primary residence
3. Must be under your control. The home cannot be subject to rental, timeshare or property management agreement.
It’s important to understand that if you don’t plan to live in your second home full-time, location can affect if it is going to be considered a second home or not. In addition, if the location of your second home is too close to your primary residence, you could be subject to higher mortgage rates of an investment property.
If you intend to use your property for tenant rental, it must be classified as an investment property. An investment property is a property that is not your primary residence and is purchased or used in order to generate income. The good news is that you can use the expected income from the rental property to qualify for the new mortgage. There are many types of investment properties. For example: residential rental property, commercial property and property purchased to “flip”.
What does it take for your property to be considered an investment property?
1. The home is within 50 miles of your primary residence and not in a location that makes sense as a second home
2. You plan to collect rent from the property (you may have to submit a lease agreement that confirms the property is occupied by a tenant).
Keep in mind, investment properties have the highest interest rates and down payment requirements compared to other property types. and also require a higher credit score.
The property’s occupancy will be determined during the underwriting process.
Wondering how your budget might be affected by either occupancy type? Give one of our loan experts a call today to discuss -833-EHL-1234