Obtaining a mortgage these days with the market the way it is, is a bit like walking through a minefield. Getting a mortgage on a second home in a rural area like Sullivan County can be even harder. However taking the necessary steps, you can avoid a lot of the potential, deal-breaking issues. I have compiled some general info on what to do and what not do when obtaining a mortgage for a second home here in the Sullivan County Catskills.
First of all we need to talk about the difference between a primary, and second home mortgages. Banks are a bit more leery lending on a second home, and the criteria is a bit stricter. They take into account all of your monthly expenses compared to your monthly income to determine your eligibility. In the Wild West of the lending era, this number could be as high as 60%, but these days it is typically around 25%. Meaning if you make $8,000 a month, your total household expenses need to be $2,000 or less. Making sure that the borrower does not overextend themselves is paramount to the banks.
Down payments on second homes are the other big change since the mortgage crisis. Expect to plunk down 20%. There are some banks that are doing 10% with private mortgage insurance, but the insurance rate is like adding two or more points to your loan, and these lenders are few and far between. All those wonderful programs like FHA, VA, USDA, and SONYMA require the home be a primary residence. Coming to the table with 20% is really the only way to go these days.
Use a Local Bank
It is possible to get a mortgage on a house here in Sullivan County from a big lender, like Citi, Chase or Wells Fargo, but why? Interest rates are not any better, and dealing with a big bank who does not know Sullivan County from Boise is maddening, and often you end up with a dead deal. Local banks use local appraisers who know the area, and understand value in our region. All too often I have seen an appraisal with comparisons that were apples to oranges. Square footage and acreage tell very little of a home’s value here. Seclusion, view, water access etc. is the sort of demand that drives prices here in Sullivan County.
I offer a list of local lenders to clients. I have a handful of good ones, and I encourage my customers to call them all, and compare. This is crucial in maintaining sanity throughout the process, and bringing the deal to the closing table.
Hiring a lawyer to assist with the transaction is a must in New York State. Again I stress, hire a local real estate attorney. The lawyer from Hempstead that helped your sister with her divorce and will cut you a deal is not a good hire. You need someone knowledgeable in real estate law, and of local Sullivan County procedures. Again I have a list of attorneys in the area. A good attorney works closely with your lender to insure that you get your mortgage.
Once your bank has determined that you are a good candidate for a loan, the next step is to ensure that the home you are buying is worth the money you are asking for. This is done with an appraisal. A certified appraiser goes to the home, and inspects. An appraiser is not a home inspector, and for a conventional loan, they do little more than a perfunctory check. The home needs a kitchen (classified by having a working stove). It needs running water, and working plumbing. It also needs a heat source, and a certificate of occupancy. If the appraiser is satisfied with what they saw, they prepare an appraisal. Most appraisers here in Sullivan County use the comparative approach, which is simply–find homes as similar as possible, which have sold in the near past, and compare prices. It is not rocket science.
However, in a rural area like Sullivan County, where home types are different, and sales can be relatively few and far between, the appraisal process can be quite aggravating. On more than one occasion, I have seen deals fall through simply because there were not any comps to support an agreed upon offer. This is something that you as a buyer should be prepared for. Now a good broker can often times assist an appraiser in finding comps they might not know existed, but in some cases there is nothing that can be done, and both parties need to move on, or come up with a creative way to make the deal happen. i.e owner finance or a lease to own option.
Other documents that the bank will need, is proof of income, W-2’s, bank statments etc.) If you are planning on borrowing, or receiving a gift from a friend of relative, have it in the account well before you start the process. Gift money does not necesarily kill a deal, but banks are suspicious of it, and will make you and the gift giver jump through hoops. A personal loan for a down payment is even worse. Sometimes the less information given, the better.
Once the appraisal has come back and has checked out fine, and your mortgage broker has secured all necessary documents from you, your loan application is complete and ready to go to underwriting. Underwriting is basically some nameless faceless person at the bank who double checks to make sure that this loan is all on the up and up. Sometimes they ask for some different documents, or updated paystubs or a survey, etc. but mostly you wait about a week, and then hear that you are clear to close.