When purchasing a home, the type of home or the way you intend to use the property will influence the type of mortgage loan that you apply for. There are 3 primary types of property that are covered by home loans – primary residence, second home, and investment property.
The home that you’re planning on living in during most of, if not the entire year is commonly referred to as a primary residence. This includes condos, mobile homes, single-family homes, and so on. Even a houseboat can be considered your primary residence. Furthermore, when it comes to home mortgage loans, you’re only allowed to designate one property as your primary residence.
Stephen B. McWilliam of Florida state Mortgage Group, Inc. quoted “You’ll typically get the best interest rate and term on the primary home since lenders know that you’ll be driven to keep up with your monthly mortgage payments to avoid becoming homeless. “ Additionally, the lender will probably require that you occupy the home within 60 days of buying it. If by chance you decide to start renting it out, it will have to be re-classified as an investment property (see below).
For the most part, second homes are purchased as vacation homes. However, some individuals will buy a second home if their work is far from their primary residence or so their children have a home while they are away at college. To be classified as a second home, it must be located a minimum of 50 miles from the primary home. A second home can be rented out for up to 6 months without classifying it as a rental or investment property.
This could be an apartment complex, condo, or home that you plan to make money on by either “flipping” it or renting it out on a full-time basis. You can live in it as your primary residence, but if there are additional units that you’ll be renting out, it will still be considered an investment property. Loans for Investment properties have a higher risk attached and therefore the loan will carry a higher interest rate. Plus, a higher down payment and lower loan-to-value (LTV) will be required as well. Finally, all of the income that the property generates will have to be reported on your tax returns.
Home Buying in Florida with Florida State Mortgage Group, Inc.
All three types of property can be subject to capital gains penalties if you sell them after a short period of time and don’t have another property purchased right away. There are other aspects of tax and mortgages on real estate investments that you need to consider. Be sure to call Florida State Mortgage Group, Inc. at (954) 359-3000 for more information.