The amount you pay for your mortgage is determined by the risk the lender is willing to take in order to give you with the funds you require to purchase your ideal home. If you’re buying a vacation house or a rental property to produce income, you might expect to pay more than if you’re buying a primary residence.
Similarly, if you buy a property in an area that is regarded riskier owing to lingering redlining issues, the interest rate you pay may be higher. Here’s a look at how mortgage rates fluctuate when purchasing a home.
Investment property V/S Conventional Loans
If you’re thinking about buying a home to rent out as an investment, you’ll have to meet more stringent conditions and pay a higher mortgage rate than if you’re buying a home to live in. You could be looking at a mortgage rate that is 50 to 87.5 basis points more than the current rate, according to LendingTree.
What makes this happen? Investors will want to keep their money safe, so if the rental property is vacant for a long time, they may opt to “cut their losses and flee.” With this in mind, lenders charge a higher interest rate to compensate for the greater risk. They’ll also want to know more about the prospective borrower’s creditworthiness and capacity to meet the financial obligations that come with owning an investment property.
Buying an Extra Home
If you want to buy a second house or a vacation home, you can expect to pay more than you would for your primary dwelling. You’ll have to spend a little extra for the down payment and your loan will have a slightly higher interest rate. Additionally, your lender may impose higher cash reserve and debt-to-income (DTI) ratio requirements.
Your second house mortgage interest rate might be half a percent to one percent higher, according to Bankrate. You might be asked to put down at least ten percent up front, whereas a primary residence only requires three to five percent.
The bank would most likely want two to six months’ worth of cash reserves to cover payments on both of your properties, depending on your credit and financial profile. While your primary residence’s lender may be more flexible with your debt-to-income ratio, allowing a ratio of up to 50%, a second home’s DTI might be as little as 36%.
Affordable Housing does not affect property values negatively
If you’re a homeowner or a buyer concerned that an affordable housing project being developed in your community could lower your property value, the Urban Institute’s research may set your mind at ease. Using Zillow’s property database to predict the relationship between affordable housing projects and the prices of various properties nearby from 2000-2020, researchers discovered a small but noticeable rise in property value in Alexandria, Virginia. The value of properties within 1/16 of a mile of an affordable development, roughly equivalent to a city block, increased by 0.09 percent on average.