Differences Between a Second Home, an Investment Property, and a Vacation Home


When buying a house, many people might simply think it is just as simple as that. However, there are many ways homes can differ depending on how you’re going to use them. Whether you want this place to be your primary residence, a house you rent out to make passive income, or a home you venture to when you just want a change of scenery, all these factors can change what kind of mortgage you can get. This article will illustrate the differences between a second home, an investment property, and a vacation home.

Second Home

To have a second home, you first need to have your primary residence. A second home is usually not where you spend most of your time in but can be somewhere you maybe want to end up in the future. If you live in the bitterly cold Midwest and want to fly south for the winter, you might get a Florida or Georgia property to mitigate your winter months. Those looking to prepare for retirement might want to live somewhere else than where they currently are because of their job. A second home could be a way to get the ball rolling on thinking about where you want to end up later on. If you are considering getting a second home, you need to consider a few factors. Make sure you can afford the expenses such as taxes, furnishings, and a second mortgage. Many lenders require that your second home be at least 50 miles away from your primary residence. Since it is a place you will be using for some part of the year or in the near future, the down payment and interest rates will be similar to buying a primary residence.

Investment Property

An investment home can range from an apartment unit in a major city to a bungalow on the lake. The property’s intended use is to have it be a place you do not use yourself but instead will rent out to others. Whether it is a weekly beachfront rental or a townhouse that you will lease out, the reason you have it is to create passive income and eventually sell to make a profit, hopefully. These properties will be treated differently from second homes because they are riskier. Since they are an investment and the homeowner does not actually live in them, it will be easier for many borrowers to default and walk away from the property. According to Mortgage Loan, lenders need to make sure they protect themselves from these events, which is why they will require a higher interest rate on the mortgage, a larger down payment, and that the borrower has a good credit history.

Vacation Home

When thinking about a vacation home, consider it a mix of a second home and an investment home. If you are looking to get a place on the beach and are planning to rent it out in the summer, this makes it an investment property since you are making money from it. On the other hand, if you intend on using it during the months when people don’t go to the beach, it is then acting as a second home for you and your family. Because vacation homes straddle the definitions, they are considered riskier and will require similar down payments and mortgage rates to an investment property, according to Investopedia. However, this option is great if you want to have a second home that can pay for itself. Use the property anytime you want while making money when you rent it out if you’re not using it yourself. It is the best of both worlds if you are willing and able to do it.

In the end, the way you intend to use your home will determine the types of mortgages available to you. If you are looking for assistance in obtaining financing on your new home, make sure to connect with a RPM Mortgage Loan Advisor.