Changing rules for financing your Summit County vacation home

Financing a vacation home in Summit County, Colorado is essentially not much different than getting a loan for a primary residence, here or anywhere else.  All one needs to do is be able to show the income, credit history and have the money in the bank that the lender requires.  So why is it so much more difficult today than it was a year ago?  More than half our clients prefer condos and townhomes for their second homes as they don’t have the maintenance and responsibilties a single family home has. Financing a condominium or a townhome that has a homeowner association and condo documents is now a very different process.   

With the mortgage industry problems, all the rules have tightened up.  One of the biggest swings of the pendulum has been in qualifying the property you are buying.  Getting your credit approval is only half the process; qualifying the property is the other half.  Mortgages are sold on the secondary market to investors, and because many of the investors bought low quality loans that since have gone into foreclosure, they now are very careful about what they buy.  One of the rules has always been that they would not buy loans where more than 20% of the other units in the condo complex were “rental” units.  Here in Summit County, we have to define what constitutes a “rental” as there are some complexes where most units are rented short term to skiers and vacationers.   We always assumed that “rental” meant long term, where the property was rented for a year or so at a time.  After all, the reason they don’t like rental units is because the investors feel that long term renters don’t take care of the property as carefully as owners do, and as a result, the complex will not be well maintained and property values would be more likely to decline.  Short term rental properties are often in much better condition in order to attract the skiers paying high nightly rates.    But if the lender considers it a condo hotel, (and they all have their own definition of what a “condotel” is) many will not lend on it either.

Lenders are now looking at the governing documents of the condo complex.  They examine the reserves that the HOA has built up and if they don’t consider them adequate, or don’t think enough is being put aside, they refuse the loan.   They never used to look at the documents or the reserves and felt it was something the Buyer should determine to be adequate.   If there are any timeshares in the complex, or if there is a front desk in the lobby, (part of the condotel definition) they refuse the loan.  If more than 20% of the floor space is given over to commercial interests, many will not lend on it.  Downtown Frisco has several condo complexes with 50% retail.  It has been a very popular concept, with stores on the main level and condos upstairs,  just a few steps from shopping, dining, busses and coffee shops.  Today, we have to find portfolio lenders who have direct investors and don’t need to sell the loans on the secondary market.  Several of our local banks will do this type of loan, but it may not be possible to find one with a fixed rate.   Five year adjustable rate loans are available at comparable rates. 

I have also seen mortgage brokers trying to send a loan through a bank and having the loan turned down, but if the borrower had applied directly at the bank, it would have gone through.  That is because there are now separate rules for brokered loans versus direct loans.  Some of the lenders determined that brokered loans had higher foreclosure rates so they gave them more stringent qualifications on both the borrower and the property.  There are even some that don’t allow a condo purchase if the word “lodge” is in the name of the complex! 

The rules change daily, it seems.  As I write this today, it may not apply tomorrow.  Unless you are paying cash, it is more important than ever to use a local lender and a local real estate broker.  We have many clients who tell us that they already have a relationship with a lender in their town in Texas, Kansas or New Jersey, and they want to use that lender.  In the past, we always heaved a big sigh as we knew it was fraught with potential problems, but had no choice but to go along with it.  Today, as a listing broker, I will not accept an offer from a Buyer wanting to use one of those lenders.  I know it will go down in flames, and it is very possible that the Buyers may lose their earnest money when the lender announces two days before closing, (after the deadline for loan commitment) that they cannot do it.  You absolutely need guidance in selecting your lender as you need someone who knows which lender can lend on the type of property you are wanting to purchase.  That is one of my responsibilities as a real estate broker, whether I am a Buyer’s agent or a Seller’s agent.   I make no money, get no referral fees or any other types of goodies from the lender.  What I get out of it is a happy Buyer, a happy Seller, and a smooth, successfully closed transaction. 

Some of the lenders who helped me gather this information are Angela Page; Judy Irwin, Wells Fargo Mortgage;  Wendy Paulus, Cherry Creek Mortgage and Marlene Stuart at US Bank.   

Posted by Summit County Real Estate Agent Joanne Hanson at 8:16 pm in Summit County Real Estate. Subscribe to comments RSS feed.

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