By Sabrina Karl
When comparing mortgage rates, the rate tables you’ll first encounter may not be the right rates for you. That’s because lenders charge different rates for different property types. So what you’re buying makes a difference.
The typically advertised mortgage is for a single-family detached home in which you’ll reside. But what if you’re buying a townhome, a condo or a duplex? Or a vacation home or rental property?
Each property type carries different rates from a lender, as historical buyers of each type have different default rates. Buyers of a single-family detached home that will be their primary residence default the least often, so lenders charge the lowest rates for these properties.
Beyond this, two parameters affect your rate: whether you’ll personally live in the home, and the type of property you’re buying. If you’ll live in the home yourself, whether a primary, second or vacation home, you’ll fare better rate-wise than if others will live in the home. Conversely, rental properties have higher default rates – and thus higher rates – since landlords are more likely than homeowners to walk away from a property.
Then there’s dwelling type. Condos carry more risk for lenders, in part because the buyer won’t own the land and is subject to the condo association handling many aspects of the property. So condo mortgage rates are typically higher than single-family rates.
Townhomes and duplexes are hybrids of sorts, with their mortgage pricing depending on the lender. For instance, whether the townhome is attached, semi-attached or detached may have a bearing, as will a duplex’s owner-occupied or full-rental status.
Specifying your property type is critical to effective mortgage rate shopping, so if you’re buying something other than a single-family primary residence, know that you’ll need to dig deeper than pre-published rates.