X

What's coming up next year for mortgage rates... the Fed... housing markets... home prices? See HSH's 2022 Outlook for our expectations!

What's coming up next year for mortgage rates... the Fed... housing markets... home prices? See HSH's 2022 Outlook for our expectations!

Why are mortgage rates higher for investment properties than for second homes?

Q: I bought a second home I rent to my daughter with the intent she buy it in the future. I have a 5 percent interest rate and I had to buy it down to that since the mortgage lenders I contacted said I had to treat it as investment property. I am not trying to make money on it. Is there a lower worthwhile rate I can get? Someone told me that since it was family that it was possible.

A: As far as mortgage rates go, please know that investment property mortgages usually run about one percentage point above owner-occupied residential mortgages (and can be more or less, depending upon whether fees are incorporated into the interest rate or not).

As far as family goes, unless your daughter is on the mortgage note and deed, she's not an owner, so an investment financing arrangement would apply.

Investment home

There are some arcane rules for what constitutes an investment home versus a second home.

For one, if you need the income (rent) from your daughter to cover the mortgage on the house or to augment your income to a point where you can cover it, then it's an investment home.

Second home or investment home?

In terms of being a "second home," there are some "distance" requirements which come into play. Even if your income without the rent is sufficient, the home must be a "reasonable distance" away from your primary home to be a "second home," usually akin to about 50 miles or so. It can be closer if the home is in an obvious vacation spot (near the beach, a skiing area, etc.).

If it's just a plain old home not all that far from where you live, the property is usually treated as an investment since you really have no compelling reason to stay there instead of your primary home.

Also, to be considered a second home, the general guidelines also include that you, the borrower, must occupy the property for some portion of the year. If the property and occupancy fail these tests (plus a few others), the property is treated as an investment.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Submitting your question...

Question received! Check back later to see if your
question gets published.

Q: What loan amount does a mortgage need to be for it to be considered a Jumbo Loan?
JAN 03, 2022
A:

This question used to have a simple answer, since there was a "bright line" definition -- the conforming loan limit....

Read More
Q: What is the cost of getting a mortgage loan?
NOV 11, 2021
A:

 Costs and fees can vary depending upon lender policies and certain of the choices you make when you get your loan...

Read More
Q: What is the down payment required to get a mortgage these days?
NOV 03, 2021
A:

A: While some 100% financing may be available...

Read More
Add to Homescreen?
X
X
Install this web app on your phone :tap and then Add to homescreen