Factors that determine your mortgage rate: type of property and use
What affects your mortgage rate?
Your mortgage rate depends on many factors, such as the global economy, the loan you choose, and the number of points you pay. other variables that can add 1.5 points or more to your costs are the type of property (single family home, duplex, condo, manufactured home, etc.) and use (primary residence, vacation home, or rental / investment ).
Check your new rate (July 23, 2021)
How does the type and use of property affect your mortgage rate?
The cheapest financing applies only to primary residences – the house you live in most of the time. Some lenders charge more to lend on a vacation property, and most charge a higher credit score and down payments for these homes.
Investment properties that you rent out or plan to resell quickly at a profit are even more risky. Expect to pay higher fees and face much stricter underwriting standards.
How to qualify for a mortgage with 2 primary residences
The type of property you buy or refinance influences your mortgage rate. Condominiums, for example, are riskier to finance than single-family homes.
The same goes for multi-family properties (like duplexes), co-ops, manufactured homes, skyscrapers, log homes, mixed-use developments, ranches, and weird buildings like geodesic domes.
Fannie Mae and Freddie Mac add supplements for loans secured by manufactured homes, condos and multi-unit buildings. Many other lenders do this as well.
How much does it cost to finance an additional rental? Your deposit affects the supplements for rentals. In fact, if you put down a large enough deposit (30% or more), you may not have to pay extra to finance a rental. But most buyers will pay 1.5% or more for an investment property backing mortgage.
Live in your rental property and call it primary residence
What if you don’t need the rental income to qualify for a mortgage? Can you finance your investment home as a vacation spot and pay less? It’s unlikely. Fannie Mae lists these conditions that must be met to finance a property as a second home:
- The property must be a reasonable distance from your primary residence
- You have to occupy it part of the year
- It must be a one-unit house
- It must be suitable for year-round occupancy
- You must have exclusive control over the property, with no management or timeshare arrangements
If you finance a property as a second home and not as a rental, it must pass the “smell test” or it will be considered a rental.
As long as your mortgage amount is within the limits set by Fannie Mae and Freddie Mac, there are no additional costs for buying or refinancing a second home. However, jumbo or portfolio lenders often add about 0.5% to loan fees for vacation properties.
How to get a mortgage for a second home / vacation property
Don’t expect to use a government guaranteed loan to finance a vacation or rental home – these programs are only for primary residences.
If you want to finance a condo, its community must follow the guidelines of the lender or the entity guaranteeing the loan. This means limits on the number of units that can be occupied by tenants, specifications on the number of owners that can default on their HOA dues, and other factors.
The homeowners association must submit an application package for review if the resort is not already approved by the lender.
Guaranteed and unsecured condos
Condos can be more expensive to finance. While government mortgage programs such as FHA and VA don’t add additional fees for condos, Fannie Mae and Freddie Mac charge 0.75% fees for condominium loans above 75% of the loan-to-value ratio. Giant mortgage lenders typically add 0.125 percent to the rate (as opposed to fees) when lending on condominiums.
And the skyscrapers? Giant or non-compliant lenders often charge more for lending on high-rise buildings, and some refuse to lend on them at all. However, high-rise buildings on Fannie / Freddie, FHA, or VA approved listings can be funded like other condos.
Financing manufactured homes can also be difficult. This is largely because the traditional houses to augment in value over time, prefabricated houses depreciates overtime.
To be eligible for mortgage financing, a manufactured home must be legally classified as real estate. You need to secure the prefabricated house to a permanent foundation.
Get a loan on a prefabricated house
Taxes matter too. If you pay the taxes on your house at the DMV, it’s not a house, it’s a really big car. In this case, you have to finance your home with a personal loan at a much higher rate.
You can finance manufactured homes that are not real estate with an FHA Title 1 loan. It is not a mortgage. It is a personal loan, and the rates are higher.
If your manufactured home is real estate, now is the time to find your mortgage. Fannie Mae and Freddie Mac buy prefabricated house loans. They charge a 0.5 percent fee.
FHA and VA lenders do not assess these fees, and government mortgages hold about 20% of the manufactured home financing market.
Fannie Mae and Freddie Mac will finance duplexes up to 85% of the property’s value, and triplexes and quad-plexes up to 75%. There is a one percent surcharge.
2017 FHA loan limits for multi-family housing
VA and FHA lenders allow you to finance multi-unit properties at no additional cost. FHA loan limits are higher for multi-unit buildings than for single-family homes. You have to live in one of the homes if you want a government guaranteed loan.
What are the mortgage rates today?
Today could be a great time to buy or refinance if your mortgage rate is right. Try comparing offers from several lenders now and see what kind of deal you can negotiate.
Check your new rate (July 23, 2021)