Getting to the point where you can afford to expand your real estate portfolio is a huge milestone. When it comes to financing an investment property, there are a few key differences when it comes to the loan process.
What is considered a primary residence?
A primary residence is the home you live in. If you live in multiple homes, then it is the home you live in for the majority of the year. If a primary residence has been recently purchased, the buyer must live in it 60 days following the closing. There are beneficial tax deductions with having a primary residence – A borrower can deduct mortgage interest as well as property taxes and this is typically outlined in the borrower’s personal tax returns as well.
What is considered an investment property?
If you’re thinking of buying an additional property with the sole purpose of renting it out or earning income from it, then it would be considered an investment property.
Investment properties tend to have more stringent interest rate and down payment requirements because they tend to have higher delinquency rates than other occupancy types.
A property will likely be considered an investment property if:
- The home is within 50 miles of your primary residence
- You will not be living in the property, and you plan on collecting rent or lease payments from it
Investment properties also make you eligible for tax deductions – especially if the property is used as a rental. By renting, you can claim expenses for repairs, management, cleaning, supplies, and insurance premiums and any tax rental properties owned are typically listed in the Schedule E of the personal tax return.
Having good credit will make you more eligible for mortgage financing in general and will offer better interest rates. If your credit scores are not ideal, you may want to focus on building up great credit first rather than jumping into an investment property (this will benefit you in the long run).
If you’re unsure of how your property will be classified or how it can affect your mortgage, give us a call at (760) 930-0569 and one of our loan officers will assist you.