In short, if you buy a property in addition to your primary residence and you do not plan to collect rent from the property, then the mortgage should be classified as an owner-occupied loan on a second home. For a property to be classified as a second home when you apply for a mortgage, you are also supposed to live in the property for some part of the year, although a minimum number of days is not specified.
Additionally, a second home can only be a single unit property, cannot be a timeshare or managed by a property management firm that may rent it out. This means multi-unit properties are not eligible for a second home mortgage.
If you are not buying a property with the intent to rent it out, the mortgage should be considered an owner occupied loan as long as the property meets the other requirements outlined above. This means your mortgage rate should be slightly lower than for an investment property but slightly higher than the rate on your primary residence.
Please note that when you apply for a mortgage on a second home, your ability to qualify for the loan depends solely on your credit score, debt-to-income ratio and other borrower qualification guidelines as opposed to any rental income generated by the property.
To get approved for the loan, lenders require you to demonstrate that you can afford the total monthly housing expense -- which includes the mortgage, property tax and homeowners insurance -- or rent on your primary residence as well as the total housing expense on second home. This is why it may be more challenging to qualify for a mortgage on a second home as compared to a loan on your primary residence or an even investment property that generates rental income.
We recommend that you contact multiple lenders in the table below to confirm the mortgage terms for a second home. Shopping lenders is the best way to save money on your mortgage.
If you buy a property and plan to rent it out to anyone, including a relative, then the mortgage is classified as non-owner occupied. You are required to disclose on your loan application if you intend to rent the property being financed.
The mortgage terms and qualification requirements for a rental property are different than for a second home or your primary residence. The interest rate is higher and you are usually required to make a higher down payment to qualify for the mortgage.
"B2-1.1-01, Occupancy Types." Selling Guide: Fannie Mae Single Family. Fannie Mae, May 1 2019. Web.« Return to Q&A Home About the author