Financing Options for Those Buying Colorado Homes for Investment Properties, Vacation Homes, or Primary Residences
The Roaring Fork Valley in Colorado is home to some of the most beautiful and luxurious towns in the world, including Aspen, Snowmass Village, and Glenwood Springs. Buyers gravitate to Roaring Fork Valley real estate for primary residences, as well as second homes and investment properties, due to its many amenities, popularity with tourists, and unparalleled lifestyle. Do you plan to buy single-family homes in Roaring Fork Valley, CO, this year? Knowing how you will finance your purchase is one of the first obstacles to overcome before you begin looking for homes. Here are some options.
If It Is Your Primary Residence
Buying single-family homes in Roaring Fork Valley, CO, as your primary residence presents the fewest challenges when it comes to financing. Here are the most common choices:
- Conventional loan. A mortgage that is not guaranteed or insured by the federal government is referred to as a conventional loan. Conventional loans usually have a fixed rate, which means it won’t fluctuate throughout the term of the loan and will stay at the rate at which you secured it. While conventional loans typically require a high credit score, low debt-to-income ratio, and large down payment to avoid private mortgage insurance, they are almost less costly than other types of loans that are insured by the government. You can obtain a conventional loan for various periods of time, the most popular being 30 or 15 years.
- FHA loan. If you are a first-time homebuyer, you may be able to secure a Federal Housing Administration (FHA) loan for your Roaring Fork Valley real estate. These loans are guaranteed by the FHA, have lower down payment requirements, and are easier to qualify for. FHA loans feature mortgage insurance premiums that can be rolled into the overall cost of your loan.
- VA loan. If you are an active or retired member of the military or are the spouse of an active or retired military member, you can qualify for a VA loan that is guaranteed by the Veterans Administration. These are easier to qualify for than conventional loans and do not require a down payment, although there are fees involved that you would not pay with other types of loans.
If It Is a Second or Vacation Home
Vacation homes and investment properties are financed differently, so it’s important to decide why you are purchasing Roaring Fork Valley real estate. To qualify as a vacation home, you must occupy the home for at least 30 days per year, the property must be a single-unit dwelling, it must be kept up for year-round occupancy, and it cannot be subject to rental, timeshare, or property management agreements. Once you’ve determined this will be a secondary or vacation home, the most common financing option is to take out a secondary mortgage. Interest rates on secondary mortgages are usually slightly higher than on first mortgages, and you must show a lender that you are able to pay both mortgages by meeting or exceeding very specific financial thresholds.
Coming up with the money for a down payment and closing costs is another consideration for those buying single-family homes in Roaring Fork Valley as second homes as they will not be able to access the equity in their primary residence through selling it. If you do not have the cash available to make a down payment and cover other costs, consider these options:
- Do a cash-out refinance. You can pay off your entire first mortgage and take out another mortgage for more than you owe on it with a cash-out refinance. You will get the difference in cash that you can then use to make your down payment.
- Get a HELOC. A home equity line of credit (HELOC) is a revolving line of credit secured by your primary residence. You can choose how much of your credit line to access to pay closing costs and make a down payment, and you only have to pay interest on the portion of your credit that you access.
- Borrow from your 401(k). Those who have a qualified retirement plan may be able to borrow from it to make a down payment on Roaring Fork Valley real estate. If you have a 401(k), contact the administrator of your plan to see if loans are allowed and how much you are able to borrow.
If It Is an Investment Property
Many of the same loan types are available if you are buying single-family homes in Roaring Fork Valley, CO, as investment properties. However, you will likely need to put down a larger down payment and will face more stringent qualification standards than if you took out a loan for a primary residence. A loan option that is unique to investment properties is a hard money loan, sometimes known as a “fix-and-flip loan, that is secured by the investment property.
When buying Roaring Fork Valley real estate as an investment, it’s important to keep in mind that interest and taxes are different on investment properties. While you can deduct your mortgage interest up to $750,000 on any qualifying loan on primary and secondary homes, you cannot do so on rental property. You will also pay income tax on any earnings from your property. On the plus side, you can deduct depreciation of your property, as well as certain expenses, income losses, and travel expenses to and from your property to maintain it.
Are you ready to start looking at single-family homes in Roaring Fork Valley, CO, for your primary residence, a vacation home, or an investment property? Once you’ve determined how you will finance your purchase, reach out to an experienced local real estate agent like those with the Rimkus Real Estate group to find a property that fits your needs.