Understanding The Difference Between Vacation Homes & Second Homes

Buying a second home can be a smart choice. As part of your research, it’s a good idea to learn the financing and tax implications for different property types. Before you search for homes for sale in St. Cloud, Orlando, Kissimmee, Winter Garden, or Windermere, understand the property classifications of primary, secondary, and investment.

A primary residence is where you reside most of the year. Buyers purchasing homes for sale in St. Cloud are generally expected to take occupancy within 60 days of closing.

The primary residence tends to be the easiest property to finance, making you eligible for varied mortgage products and the lowest interest rates. Snowbirds, those who migrate between the northeast and Florida as seasons change, should consult with a tax attorney to understand the criteria for claiming a home as a domicile or permanent home.

Your vacation home is essentially a getaway, serving as your refuge to unwind, enjoy family time or participate in local activities. If you frequently visit Disney’s theme parks in Orlando or sail in Kissimmee, it may be more financially feasible, not to mention more comfortable, to buy a vacation home in the area rather than spend money on lodging and dining out.

When applying for a loan for a vacation home, you may encounter relatively high-interest rates and down payment requirements to reflect the lender’s increased risk. Also, some lenders stipulate a certain proximity to a resort area or a minimum distance from your primary residence. To qualify as a secondary residence, you have to occupy it for a specified portion of the year.

Lenders vary in imposing limits on renting out a second home. For example, Quicken Loans aligns the company’s qualification requirements with eligibility for a mortgage interest tax deduction. Leasing is permissible as long as you lived in the home for over 14 days or 10% of the days it was rented out, whichever is greater. So, if you rented out your Winter Garden or Windermere home for 180 days, you would have to live there over 18 days to claim the property as a second home.

Properties you purchase for the express purpose of generating revenue are deemed to be investment properties. Property investment can potentially reap steady income, but it is not without risks. Expect lenders to require greater down payments, higher mortgage rates, and even cash reserves. FHA and USDA loans may be restricted.

All rental income must be reported when you file your taxes, but you may be eligible for deductions for maintenance, repairs, loan interest, and property taxes.

Be forthcoming with your Realtor about your intended use of the property. The better your agent understands your purpose, the better your chances are of identifying well-matched homes for sale in St. Cloud, Orlando, Kissimmee, Winter Garden, or Windermere. Be sure to consult with lenders and tax professionals to avoid surprises.