Investment financing vs. second-home financing

[Mark Costa]

Hello,

I wanted to get some advice on potential financing options. Currently, I have two prequalification letters. One is the standard 25% down on an investment property, the other is what looks to be a second home mortgage with 20% down. Has anyone heard of issues with the second home mortgage not passing underwriting because the investment property is too close to the primary residence? I am trying to conserve cash because 

I have the chance to purchase two properties within the next few months and so I am inclined to go with the 20% down. I just want to make sure that I do not move forward on a deal only to have the financing fall through.

TYIA,

Mark

[Jeff Dulla]

Hi Mark,

Second home financing and Investment financing are different, as it depends on your intent with the property.

If you purchase a property as second home, you should have exclusive control over the property, and occupy it for a portion of the year.  You're correct to point out location does matter, as it does have to make "sense".  For example, it can be located in a desirable location, or close to family, etc.

The location of an investment property does not matter.  It can be located next door to you.  What matters is your intent with the property.  So, if you will be renting it out year round, you should purchase it as an investment.

Down payment options differ for both, and are dependent on details like property type, loan size, among others.  In some areas, on a single family home, you can put as little as 15% down on an investment property.  Similarly, in some areas, on a single family home, you can put as little as 10% down on a second home.

Getting to the point, you have two separate issues at hand.  You will need to decide your intent with the property, and you will then be able to select down payment structure.