Often, those looking to purchase an additional home get confused between a second home and an investment property. However, the two are not interchangeable – especially when it comes to their financing.

Second Home, Defined

A second home is real property that the homeowner intends to occupy in addition to their primary residence for part of the year. Usually, second homes are used as vacation homes. Second homes may also be properties that the homeowner visits on a regular basis.

Examples of second homes may include:

A condo in a city where you frequently conduct business

A beach house that you and your family occupy during the summer months

A house in a different state where you have seasonal work

Getting a Mortgage

If you can’t purchase a second home out-right, you’re going to go the traditional route and look into obtaining a mortgage. In order to qualify for a second-home loan, the property is usually required to be located in a resort or vacation area (like the beach or mountains), or be a certain distance from the borrower’s primary residence.

Understanding Interest Rates

Most lenders consider second homes to be more of a risk than primary residences, but not as big a risk as investment properties. Typically, interest rates will show this; second-home mortgages may have lower interest rates than investment property loans, but not necessarily. It can all depend on the borrower’s entire financial picture.

Understanding Rules

Second-home loans often include a second-home rider along with the mortgage. This rider states certain rules the borrower must abide by in order to qualify for the loan.

These rules often include the following:

The borrower will occupy and use the property as his/her second home

The property will be kept available for the borrower’s exclusive use and enjoyment at all times

The property cannot be used as a timeshare or be subject to any rental pool arrangement

The property cannot be subject to any agreements that require the borrower to rent the property or give a management firm (or anyone else) control over the use and/or occupancy of the property.