Purchasing a vacation home or investing in rental property requires a slightly different approach than a home mortgage for your primary residence. With these personal and/or business investments there are different loan requirements because mortgage insurance is not available for loans on these purchases. As a result, borrowers will likely have to make a 20% down payment, pay all closing costs out-of-pocket (and not rolled into the loan amount), and may have to meet more stringent financial and personal qualifications.
- Some lenders or loan programs may require borrowers to have at least 2 years of property management experience if the borrower intends to use the potential rental income to help them qualify for the investment loan.
- Second home and investment property loans typically have a higher interested rate.
- Less opportunity for lower down payment.
In addition to differences in qualification, mortgage loans for rental properties and second homes also are restricted by the property type.
|Eligible Property||Non-Eligible Property or Uses of Property|
|Single Family Dwellings||Time Shares|
|Condos||Select Manufactured Homes|
|Multi-Family Housing||Bed & Breakfasts|
Other Financial Funding Options
Aside from opting for an investment loan for your rental property or second home, you can finance the purchase through other means—like a Home Equity Loan. This option provides for a more affordable mortgage loan, one with better rates and less of a down payment. Home Equity Loans are able to offer better terms because the loan would have a tangible collateral—your home.