How does property type affect loan terms?

• A. All property types receive identical terms.
• B. Occupancy affects risk; investment properties typically have higher rates and larger down payments; second homes may be between.
• C. Investment properties have lower rates than owner-occupied.
• D. Second homes always have the same down payment as primary.

Answer: (B)

Property type changes the risk lenders see, which directly shapes loan terms. When you occupy the property yourself, the loan is viewed as less risky because you’re more likely to maintain the property and keep up payments. Investment properties, where the owner isn’t living in the home and income depends on rent, are riskier—so lenders compensate with higher interest rates and larger down payments to cushion potential vacancies and maintenance costs. Second homes sit somewhere in between, so their terms often fall between owner-occupied and investment properties in both rate and down payment expectations.

That’s why the other statements don’t fit: saying all property types get identical terms ignores how occupancy risk changes pricing; claiming investment properties have lower rates than owner-occupied is incorrect given the higher risk; and insisting second homes always require the same down payment as a primary home ignores the risk-based adjustments lenders apply.