Residential mortgage loan terms vary depending upon the stated ‘occupancy’ of the home. When applying for a loan and when closing a loan the borrower states their intention as to how the home will be used.
Primary residence – Loan terms are most favorable for primary residences. Once can borrow up to 95% on a conventional loan and up to 100% with government loans. Rates and costs are lowest for primary residences.
Second (vacation) homes – Loan terms are identical to primary homes but typically require at least 10% down. For example, one can put as little as 10% down.
Investment (NOO – non owner occupied) – NOO homes are more expensive to finance and generally require a larger down payment. Depending upon down payment there is an additional fee for NOO homes than can be paid as part of closing costs or absorbed into the rate. For example, if one puts 20% down on an NOO home they will either be charged 3 points( 3% of loan amount) or take an interest rate about .75% higher than for a primary or vacation home. If one puts 25% or more down, the fee drops to 1.75% or about .375% higher than standard rate.