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Primary Residence vs. Second Home vs. Investment Property


Is the home you’re buying a primary residence, a second home or an investment property? When you apply for a mortgage, you’ll need to know which type of property you’re buying—and you should also know that each type of property may have different mortgage costs.

There are two important things to keep in mind about these three different types of properties. First, underwriting guidelines can vary widely between lenders so it’s imperative to do your research ahead of time, especially if you’re buying a second home or investment property. Second, mortgage costs in general can vary and the rate and terms on your specific mortgage will also depend upon your credit and other borrower-specific factors.

Here’s a quick primer on the three types of properties:

Primary Residence: As the name implies, this is your main home. You must live in the home for the majority of the year and it must be within a reasonable distance to your place of employment. In terms of mortgage costs, lenders often view a primary residence as the lowest-risk type of property. This means that you’ll usually have a lower interest rate and lower down payment requirement for a primary residence mortgage, as compared to that of a second home or investment property. As a side note, if you’re refinancing your primary residence, you’ll need to prove residency.

Second Home: A second home is defined as either a vacation home or a home that is needed for employment, if you travel between places of employment. You must live in the second home at least part of the year and the second home must be a certain minimum distance from your primary home (often 50 miles, although that requirement may vary). Your mortgage costs may be similar to that of a primary residence mortgage, but there may be a larger down payment required. A second home purchase may signal slightly more risk to a lender, since you’ll be taking on a second mortgage.

Investment Property: Unlike a primary residence or second home, an investment property is used as a source of income. Typically, the home is considered an investment property if you plan on collecting rent from the property and it’s located within 50 miles of your primary residence (although that requirement may vary, just like the second home requirement). The mortgage costs associated with an investment property are usually higher than those of a primary residence or a second home. Lenders view this type of property as a high-risk property and you’ll likely be required to have a large down payment along with other lender-specific requirements as well.

For more information on the difference between primary residences, second homes and investment properties, talk to your mortgage professional.

For more than 25 years, Omega Financial has been serving mortgage clients in Massachusetts. Our brokers have approximately 50 years in the mortgage business. You always will receive fast, courteous, and accurate information. Omega Financial, Inc. is a company duly licensed to operate in Massachusetts as a Mortgage Brokerage. We are located in the Town of Norwood, Massachusetts where we have been operating as Omega Financial Incorporated since 1988.

Licensed by the Commissioner of Banks - License No. MB2671

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