A second home may be a single family home, condo, or townhome where you go to relax and spend time at less than six months of the year. Oftentimes in Colorado, this means a home in the foothills of the Rockies or in a popular ski resort area such as Steamboat Springs, Telluride, Vail, Beaver Creek, and Aspen.
Some contrasting differences between a primary residence and second home (also referred to as a vacation home) are: 1. the owner lives in the second home part-time. 2. down payment requirements, liquid reserves, and borrower's credit score are a little more restrictive.
Fortunately, what is similar are the interest rates on a second home and a primary residence.
The most important aspect of classifying a second home is that it should not be used solely for rental income. If you have rented the property for the last 12 months or a large portion of year it can be considered an investment property from a lender's perspective.
Many people buy a vacation home in Colorado's resort areas and spend just two to- four weeks living in it annually. It is not uncommon to hire a property management company to rent out your vacation on weekly or monthly basis. However, if you are refinancing the vacation home and your tax returns show it receiving rental income, this could become a problem for underwrting
The next determining factor is the distance from your primary residence to your second home. The accepted guideline is the proximity of a second home should be a minimum of 50 t0 100 miles away. However, at the discretion of the lender on a case-by-case basis, exceptions are given for the 50-mile rule especially when it is located in a well-known vacation home area.
Down Payment for Second Home The lowest down payment using a conventional loan is 10%, whereas jumbo loans may require at least 20% or more.
Credit Scores Usually a credit score more than 700 is what lenders want, yet some loan programs allow lower scores. No matter what eligible score you have, any late payments on your mortgage in the last 12-24 months may hurt your chances of qualifying.
Debt to Income Your income should be sufficient so that it is below 43% of your monthly gross income. If not, there are no tax return loan programs using just bank statements for income and a program for those who have substantial amounts in savings or brokerage accounts.
Liquid Assets Many lenders want you to have a minimum of 6 months worth of mortgage payments in a checking, savings, or investment brokerage account that covers both your primary and second home.
The decision is yours with how you want to proceed in financing a vacation home in some of these beautiful areas.
Depending on the lender, sometimes low down payments or 15-percent or 85 LTV up to $1,000,000 are allowed. Home buyers who want this high LTV lending product will usually need to have 740 or higher middle credit scores, at least 6 months of the proposed mortgage payment in liquid reserves, and a debt-to-income ratio (DTI) of 45 or less.
Disclosure: The minimum loan amount is $200,000. Loan programs are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify. The programs above do not include homes with 20 acres or more, log cabins, hobby-farms, or agriculturally zoned properties.