One primary home and several “second homes” is possible in the world of mortgage financing and IRS tax shelter benefits. The word second is not a numerical value for mortgage financing or tax benefits. Second homes are defined differently than investment properties when it comes to mortgage financing and rental income taxation. For instance, they must be a certain distance away from the borrower’s primary residence, 50 miles others require 100 miles. Most lenders prefer the second home is in a vacation destination. Second Homes have a lower risk factor than investment properties across the mortgage banking underwriting platforms.
Generally, the interest rates are lower on second homes than investment properties solely on the property designation. Qualification documents are usually easier to obtain for a second home rather than an investment property. Some lender guidelines have additional risk overlays to prevent foreclosures. It is essential to understand which lender policy would best suit your mortgage financing needs before applying.
The IRS defines a second home under two conditions:
- You live in it for at least 14 days each year.
- You live in it for 10% of the days you rent it out.
Renting your second home for two weeks or less in a year, you can keep all the rental income it generates, according to the IRS. Some lenders use a more extended duration when qualifying with a rental situation in a second home. Renting for 180 days of the year and living in it for 18 days or more is considered a second home for the mortgage interest deduction.
To review the documentation necessary to qualify for second home financing, you can book a free 30-minute consultation. Consultations requiring longer than 30 mins are $85 per hour.