How Lenders See Second Homes VS. Investment Properties

When you sell second homes and investment properties, it is important to know the lending differences your buyers will encounter. The lender will be considering the location, the proposed use of the home, the down payment and reserves in order to determine whether to make an investment or second home loan.

Although it may vary by lender and locale, a property must be at least 50 miles from the borrower's primary residence to qualify as a second home. If the home is closer and it is being purchased for other family members, the primary borrower must still occupy the property for a minimum number days of the year. It will be considered an investment property if it doesn't meet the usage criteria.

Lenders view investment property purchases as being higher risk and will require higher down payments. They want the borrowers to have a higher equity stake than that with a second home loan.

Investment properties usually rely on tenant rents to make loan payments. Since this poses a higher risk for loan repayment than a second home, lenders require more reserves to cover vacancies or delinquent tenants.

Up to 75% of the projected rental income can be applied to the borrower's debt-to-income ratio, making it possibly easier to qualify than for a second home loan. A special appraisal to validate projected rents will be required.

GenNEXT Funding is here to help you expand your business, so please don't hesitate to call and refer your second home and investment buyers to us. Call GenNEXT Funding at 800.773.6531 or email us at [email protected].?