It’s just become more expensive to get a mortgage on a second or vacation home.

First, let’s define what a second home or a vacation property is versus an investment property. An investment property is purchased to rent out to others and not used as a permanent residence. A second home or vacation property is not the owner’s permanent residence, but it also is not used as any type of rental property.

This distinction is important because an investment property requires a minimum of a 20% percent down payment and the mortgage interest rate is higher than a permanent residence.

Traditionally, to mortgage a second home, a borrower could put as little as 5 or 10% down but have a low mortgage rate, the same as a permanent residence, which kept the monthly payment lower.

What’s happened is that borrowers gamed the system by claiming a home was a second home but in reality, they used it as an investment property. They purchased the home with as little as 5% down and the same mortgage interest rate as a permanent residence so their cash flow was much better.

However, the Feds have now priced mortgages for second homes higher than even that of an investment property, making it very difficult for borrowers to finance a vacation home today. This has potentially serious impact on the demand and sales pricing for Colorado vacation homes.