Jerry Merrick, of BB&T Mortgage, has provided these guidelines about the current requirements of mortgage loans in the Deep Creek Lake and Garrett County Maryland areas.
Second & Vacation Home Loans
A second home by definition is located in a resort area and farther than 60 miles from the borrower’s primary residence. There are some exceptions but this is done on a case by case basis.
Conforming mortgage loan limits for second homes at Deep Creek Lake and in Garrett County are $417,000 and below - which is the same as primary residences. Typically borrowers will pay 0 points on a conforming loan with acceptable credit scores. Any loan over $417,000 is considered to be a jumbo loan.
Interest Rates for second homes under $417,000 are the same as those for a primary residence, there are no differences. These rates are currently in the high 4% to low 5% range which are historical lows! Rates for second home loans over $417,000 are typically 1% higher.
The down payment requirement for second homes with loan amounts under $650,000 are currently at 20%. The down payment and credit score requirements change as the loan amount increases over $650,000. For any loan amount between $650,000 - $1,000,000 the down payment increases to 25% and the minimum credit score required is 740. Any loan amounts between $1,000,000 - $2,000,000 the down payment requirement increases to 35% and the minimum credit score required remains at 740. There are no private mortgage insurance companies approving second homes at this time. This is why the down payment requirement for a second home is currently at 20% and more. This is expected to change as time progresses and guidelines loosen up a bit. At some point in the future lenders will return to a 10% down payment option for second homes.
Most of the full time vacation rental homes at Deep Creek Lake are considered to be investment properties. Depending on how many days you personally use the property and how you treat it on your tax return will also determine whether the property is to be treated as a second home or investment property.
The same loan limits apply to investment properties as the primary and second homes - $417,000 and below are conforming and loan amounts above $417,000 are considered to be a jumbo loan.
Interest rates for investment property loans at Deep Creek Lake less than $417,000 are the same as primary residences and second homes and typically 1% higher for loans greater than $417,000. The crucial difference is that the point structure is exponentially higher. The minimum point structure for both conforming and jumbo investment property loans is 1.75 points regardless of credit score and down payment.
The down payment requirement for a conforming investment property loan is 25% and the minimum credit score is 720. If the borrower’s down payment is more than 25% then the minimum credit score requirement is reduced to 620. The down payment requirement increases to 35% with a 740 minimum credit score for investment property loan greater than $417,000. The maximum financing for a jumbo investment property is $1,000,000.
Rental income for a new purchase can not be used in qualifying for an investment loan! You must be able to qualify based on your current income and wages - not the existing income of the vacation rental. On a slightly related note - a rental property that has a two year history of rental income can be used on a refinance transaction.
As with second homes and investment properties, the conforming loan limits for a primary residence in Garrett County is $417,000. Any loan for a primary residence greater than $417,000 is a jumbo loan.
Conforming fixed interest rates are usually priced 1 % less than jumbo fixed rates. These rates have recently been bouncing between the high 4% to low 5% range. This may end up being a once in a lifetime opportunity to lock in an interest rate this low! Also, borrowers typically pay 0 points based on credit scores.
Down payments for a primary residence vary based on the borrower’s qualifications such as credit score and debt to income ratio. A borrower with a 680 credit score and a debt to income ratio of less than 41% can borrower 95% of the purchase price with private mortgage insurance. For loans greater than $417,000 the minimum down payment on a primary residence purchase is 20% because there are no private mortgage insurance companies available to insure these loans. The minimum credit score required increases to 700 on these jumbo loan but the borrowers still typically pay 0 points depending upon credit score.
Right now the CHIPS loan is by far the best available program for principal residence home buyers in Garrett County or people looking to relocate to this area. The CHIPS loan will allow 100% financing with a maximum borrower investment of $500 plus 2 months reserves of principal, interest, taxes and insurance. The borrower can not own any other real estate at the time of application. The minimum credit score for 100% financing is 660 with a maximum debt to income ratio of 41%. CHIPS will work for any property not located in census tract 5 (Deep Creek Residential). There are no income limits, so if a high net worth person is purchasing a primary residence and is looking for 100% financing this program could work. Sellers can pay all closing costs and all funds with the exception of $500.00 which can be a gift from a family member.
As you can see there are many products and options available to consumers today. Now more than ever it is important to choose a lender who is experienced and knowledgeable to help you with an advice. For more information about these loan guidelines or to get pre-qualified call Jerry at (301)387-3219 or email him at JMerrick@BBandT.com.