The way you use your property has a direct impact on the type of real estate loans available to you. There three main types of properties associated with home loans are primary residences, second homes, and investment properties. Here's a look at what you should know about the relationship between property use and real estate loans.
Home Mortgages Explained
Most people cannot afford to purchase homes outright with cash, so they find a lender that can set them up with an affordable monthly mortgage payment with interest. The mortgage company considers multiple factors as to whom they approve for loans and how much cash they make available. Some of these factors include:
- Credit history
- Loan amount
- Fixed or adjustable interest rate and additional fees
- Annual Percentage Rate (APR)
- Term of the loan
- Penalties if the loan is not repaid on schedule
In order to qualify for a home loan, you need to earn a certain income level. A person who gets paid an hourly wage may not qualify, whereas someone who earns thousands per month will have a better chance. Credit history is monumental since mortgage companies aren't in the business of making high-risk bets on people who have a history of late or missed payments. They also want to make sure the borrower has a steady income.
Your primary residence is the home where you live most of the time. It might be what you consider your permanent home and have no plans of putting it on the market anytime soon. If you have a second home where you stay part of the year, your primary home, by contrast, is where you stay most of the year. If at any point you decide to begin renting out your primary home, you must reclassify it as an investment property for tax purposes. Since 2018 homeowners have been able to deduct mortgage interest on loans up to $750,000.
Investing in a Second Home
A second home is a place that you only visit occasionally, such as a summer vacation home. It's typically at least 50 miles from the primary home. You're allowed to rent out your second home for up to 180 days a year. Down payments and mortgage rates for second homes are usually higher than for primary homes.
Nature of Investment Properties
Investment properties may include homes, condominiums, apartment complexes, and other real estate configurations that can earn ongoing revenue or capital gains. All the income you earn from your properties must be reported on your tax returns. Tapping into real estate loans makes investing easier. Contact Valerie Brown at (702) 826-1545 for more information on real estate investing ideas.