The Difference Between a Vacation Home and an Investment Property

Scott Senner with Interlinc Mortgage Services breaks down the differences between a 2nd home or vacation cabin, and an investment property as it relates to down payments, interest rates, and lender requirements.

Hi it's Scott Senner here with Interlinc Mortgage, and today we're going to talk about the differences between a second home, or vacation cabin, and an investment cabin, as it relates to requirements on down payments, interest rates, and what your lender's going to be asking you when you submit your application.

A Second Home or Vacation Cabin

By our definition as the lender, is one in which you do intend to occupy the cabin, at various times during the year for yourself, friends, and family.

The rest of the time you're going to be making it available for rental using AirBnb, VRBO, or whatever mechanism that you wish to try to find nightly tenants - which is a very common practice obviously, in Broken Bow, since it is a resort community.

An Investment Cabin

In contrast, is one in which you do not plan on occupying it at all. It'd be the same exact situation if you were buying a rental property down the street from where you live now.

You don't plan on using it. You can hire a property manager and let them take care of everything. It's just a normal rental house.

A second home or vacation cabin would be; one thing that you're going to be asked by your lender, both during the application process, and when you get ready to close, is your intent on the property.

If your intent is to use it yourself, and then rent it out, managing it yourself, then it's a second home. If your intent is to use it as in investment property exclusively, then it's an investment property.

You will be signing an affidavit prior to closing, if you're doing a second home, that states you do not intend to hire a property manager to take control of the cabin in lieu of you trying to rent it out yourself.

The Biggest Difference

So that's the big difference between a second home and an investment cabin; is you maintain control of the property if it's a second home; as an investment cabin, you don't - you give it to a property manager.

On a second home, the down payment requirement is 10 percent, and the interest rate on that is going to be very similar, if not exactly the same, as what you're going to get for a primary residence.

I'm recording this on November 3rd, so if you were doing a 30-year, fixed rate, cabin loan right now on a second home, you're going to be getting interest rates in the mid-to-high 2% range.

Investment cabins are going to range anywhere from mid-to-high 3's, as of today, which, depending on when you're watching this, it can be totally different, higher or lower.

Anyway, I hope that helps!

In the next video, we'll go a little bit more into depth on down payment requirements but, basically 10% down is required on a second home, 20% down is required on an investment cabin.

Thanks and have a fantastic day!