FAQ About financing a home in Sullivan County, NY

Information about mortgage financing in Sullivan County, particularly for second home buyers

Financing your second home is a little different than financing your primary home. Here is some general information on second home financing as well as information very specific to Sullivan County to help you successfully finance your purchase here.

What are the differences between financing a primary and a second home?

Ratios and down payment amount are the big differences. Lenders determine how much they’re willing to lend you based on a ratio of your total housing expenses to your total income. Typically that number ranges from 28 to 33%. Housing expenses include your mortgage payment, taxes, insurance, and in the case of a condominium or private community, any homeowners dues. (Housing expense, for their calculations, does not include utilities.)

For a second home mortgage, the lender includes the housing expenses for your primary residence together with the projected expenses for your second home to arrive a total housing expense number to calculate your ratios. Whether you rent or own your primary residence, if your monthly expense on your primary home is, say, $2,000, and your housing expense for your second home is $2,000, to a lender your total monthly housing expense is $4,000. If the lender requires that your total housing expense be no more than 32% of your gross income, you would need a monthly income of $12,500 ($4,000 / .32) to qualify for a mortgage on your second home if the total expense (what’s called PITI, or Principal, Interest, Taxes and Insurance) for that home is $2,000 per month. It’s not really that complicated when you get the hang of it. But online mortgage calculators and sites that provide mortgage pre-qualifications, like e-loan, generally do not have the capability to take primary home expenses into account when calculating affordability of a second home. The only way you’re going to get an accurate calculation and pre-qualification is by talking to a mortgage lender.

The second big difference is the down payment required. Most lenders require a 20% minimum  down payment on second home purchases, compared to 10% (to as little as 3.5% for FHA and VA loans) for primary residences. There are a few lenders who will do second home mortgages with 10% down, but require excellent credit (and the rate is typically higher than a conventional 20% mortgage.)

Can I use my bank in the city, or an online lender, for a second home mortgage?

Technically yes, but there are some downsides that buyers should be aware of.  The big money center banks, like Chase, Citi and Wells, as well as many of the online lenders, have underwriting standards that are tailored to denser urban and suburban areas with conventional property features. A key part of the underwriting process is the appraisal, particularly the comparable sales that are used by the appraiser to arrive at a valuation. The underwriting criteria at big lenders may require that all of the comps be in the same school district or township, or the same style or have a maximum variance of 25% of square footage. That may be all well and good on Long Island, where there may have been a dozen sales of similar houses within a mile or two of the subject property within the last six months. But it doesn’t work as well in low density rural areas like Sullivan County, with a much lower volume of sales.

Rural properties may also have features that don’t fit into the box. They like houses to have frontage on public roads, and access via private roads or rights of way can drive them nuts. Likewise, cesspools can be common here in older houses, but some banks don’t want to lend on houses with cesspools. Even if the cesspool is functioning perfectly well, they could require an upgrade to a septic system, which more likely than not will kill the deal. Some also balk at lending on log homes or houses with more than 10 acres.

The problem for buyers is that it’s difficult to get a read from a city lender about whether they’ll lend on a particular property. When you go into a branch and talk to a loan officer, their answer to most property-related questions is “Yes, we can do the mortgage for you.” But the reality is, most don’t know much about their bank’s underwriting criteria for rural properties.

Large lenders have also shifted ordering appraisals directly from local appraisers to using regional and national appraisal management companies (AMC’s.) The actual appraiser the AMC places the appraiser with may, or may not, have much local knowledge or access to local comp data. And the icing on this frustrating big lender cake? Your loan package and the property appraisal will likely be reviewed by an underwriter in a distant processing center who doesn’t know Sullivan County from Sun Valley, much less understand the value difference between, say, Mohican Lake and Wolf Lake. (Anyone who knows the local market understands there is a big difference between those two.)

Bottom line? I usually recommend that my clients get a mortgage through a local bank that has loan processors and underwriters with local knowledge. However, there are exceptions to this. One online lender, Quicken Loans, has made a big push into second home and rural lending, and has been pretty successful in lending here. So ask your Realtor for recommendations. He or she has day to day knowledge about lenders, and can give you a heads up on lenders that are likely to be successful for your transaction and situation.

Are there factors that affect the mortgagability of a property?

Yes. You may hear the term “conventional conforming” related to mortgages. “Conforming” means that the underwriting criteria for the loan conform to FannieMae and FreddieMac guidelines so the loan can be packaged into a mortgage backed security and sold on the secondary market (which is the most common scenario.)

Some rural properties, however, don’t ‘conform’ to those guidelines. Seasonal houses, not winterized for year round use, some large acreage properties, houses with spring water or shared wells or some houses on private roads without formal road maintenance agreements may not qualify. These properties can usually be financed, but through different channels at somewhat higher rates and with higher down payments. A good local Realtor, experienced with rural property, should be able to give you guidance on getting a mortgage if you’re interested in a property that may not be ‘conforming’.

Also properties that require significant work may not also qualify for a conventional mortgage, and will require what’s known as a “rehab loan”. Rehab loans are more complicated, but are an option if you’re considering a house with significant systems or structural issues.

Are mortgage rates higher for second homes?

Generally no. Particularly if you’re putting 20% or more down, you shouldn’t see much of a spread. Mortgage rates are based on risk, and if you have a substantial down payment and your credit is very good, there shouldn’t be any difference. However, if your credit is marginal, the risk to a lender is greater on a second versus primary home, and you may see a small difference.

Is mortgage interest deductible on a second home?

Generally yes, although you need to speak with your tax advisor to confirm this, as IRS rules do change. AS of 2015, the IRS permits a mortgage interest deduction for one primary and one second home. However, there are maximums and limitations (which generally only impact purchasers of more expensive properties.) As of 2015, owners can deduct the interest on purchase money mortgages (a mortgage used to build or purchase a home, not a home equity line of credit) up to a mortgage loan total of $1 million. (If you’re deducting on two residences, that $1M is the combined loan amount for both properties.) Note: the mortgage interest deduction only applies to residences; if you take out a loan to purchase raw land, without a habitable structure on it, you cannot deduct the mortgage interest! Also, if you are in that black hole known as the Alternative Minimum Tax (AMT), your mortgage interest deduction may be more limited.

What about rate locks?

Mortgage lenders offer various rate lock periods, guaranteeing your mortgage rate for 30, 45, or 60 days. In the city or suburbs, a sale can typically close in 30 to 45 days. In Sullivan County, the closing process typically takes longer for a number of reasons. The quickest I see a closing involving a mortgage is about 45 days from an offer acceptance, and 60 to 90 days is more common.

Most lenders won’t start the appraisal and underwriting process until there are fully executed contracts, signed by both parties. Here in Sullivan County, it can take a few weeks to get executed contracts after an offer acceptance, so there’s no point in locking a rate before executed contracts and wasting a couple of weeks of a rate lock. Sometimes it can take even longer to get executed contracts.

The closing process can also take longer than anticipated. Issues can pop up with title or survey that need to be resolved. In the smaller towns, someone that may need to act on something may only work part time. If both the buyer and seller are out of the area, it can take time to move documents around.

Given the long closing period here, be cautious about locking a rate soon after getting an acceptance of your offer. It is unlikely that the sale will close within a 30 or 45 day rate lock. I usually recommend that my clients get as long a rate lock as possible, and not finalize their mortgage application or lock their rate until there are fully executed contracts. It can be quite costly to extend a rate lock if you’re not able to close within the lock period. However, if rates are moving up, you may want to ‘lock’ and then pay the rate lock extension fee at the other end. This is something to discuss with the lender.

What about FHA/VA loans or first time homebuyer programs?

FHA (and VA) loans can be a great option, particularly if you have a down payment of 10% or less. They also permit you to roll some closing costs into the loan. However, FHA loans are only applicable to an owner occupied single family home used as your primary residence. Even if the home you’re purchasing is the only home you will own, if you rent in the city and spend the majority of your time there, the home you’re purchasing here is not your primary residence. Your apartment in the city is. The ins and outs of designating a primary residence is beyond the scope of this site and is something you should discuss with your tax advisor.

Likewise, there are special mortgage programs in New York state, particularly for first time home buyers, through SONYMA, the State of New York Mortgage Agency. These are also limited to primary, owner occupied residences, and some income limits do apply.

How do I find a mortgage lender?

This is something to discuss with the Realtor you’re working with to purchase the property. There isn’t a “one size fits all” lender for all properties or situations. A property may have some factors that point to using this lender versus that lender. For example, some lenders will lend on houses with spring water as their water source rather than a drilled well, others won’t. If a house is seasonal, or on piers without a full foundation, that may also tilt the decision to one lender over another.

Also, lender performance changes. A star lender on my list can get bogged down or backed up. Underwriting procedures or paperwork requirements can change, or a underwriting department move. So it’s important to have the latest information. Realtors in Sullivan County are a pretty close knit group, and we talk a lot. So if a lender is having issues underwriting mortgages here, or gets way behind in underwriting approvals, that information moves pretty quickly here. So always check with your Realtor about their current lender recommendations.

What about getting a mortgage through my credit union?

If you’re a member of a credit union, that can be a great source for a mortgage loan. But note the word “can”. A big plus for credit unions is that mortgages through credit unions, in contrast to commercial lenders, are not subject to the mortgage recording fee in New York state. Here in Sullivan County, that fee is 1% of the mortgage amount (3/4% paid by the borrower, 1/4% paid by the lender.) If you’re borrowing $200,000, that’s a savings to the borrower of $1,500 at closing.

However, there are some downsides to credit union mortgages as well. Some credit unions will not lend on properties outside of their immediate lending area. If your credit union does not operate in Sullivan County, you need to check whether they will mortgage a property here. If you’ve been shopping in an adjacent county like Orange or Ulster, and you asked them the question and they said “no problem”, and now you’re looking in Sullivan, you need to check again.

Also, the mortgage underwriting and approval process can be slower. Again, the key word is “can”. Credit unions often have smaller underwriting departments, or in some cases, farm out underwriting to a third party. Some are also more ‘ old fashioned’, in that loans are approved by a loan committee, that may meet only once a week or every few weeks. All of this can add time to the approval process.

So if you’re planning on getting a mortgage through your credit union, find out about their process and time frame so you can plan accordingly. The rates can be great, and saving the mortgage recording fee is like the cherry on the sundae.

What's a 'portfolio lender'?

Most mortgage lenders don’t actually lend you their own money to “fund the mortgage.” Most likely, the money from your mortgage comes from an investor, who ‘buys’ your mortgage, along with hundreds of others bundled into a “mortgage backed security.” There are certain criteria that both borrowers and properties have to meet for the mortgages to be bundled and sold in the secondary market. The property criteria are largely established by Fannie Mae and Freddie Mac — a single family home has to be year round rather than seasonal, with an unattended year round heat source (wood stoves as the sole heat source don’t qualify) and an uninterrupted water source, preferably a public water system or drilled well. There are some other key criteria as well.

Most houses I sell here meet those criteria, but some don’t. A farm property, where the fields and barns are leased out for commercial farming or a seasonal cabin not winterized for year round use may not.

That’s where ‘portfolio lenders’ come in. Portfolio lenders are funding the mortgage loan from their own money, and getting packaging and selling the mortgage in the secondary market. Some local banks here (i.e. First National Bank of Jeffersonville and NBDC) only do portfolio loans, and don’t sell into the secondary market. As a result, because they don’t have to conform to Fannie Mae guidelines, they can be more flexible in the properties they lend on. Portfolio loans, though, are generally more expensive that conventional, conforming loans, but for some properties they may be the only option.

Some large banks also do portfolio loans, and if a property doesn’t conform  and qualify for their lowest interest rate, they may offer you a portfolio option.

What about mortgage brokers?

Using a mortgage broker can be great or not so great. My experience has been mixed, but then again my experience with a lot of direct lenders has been mixed as well.

In theory, mortgage brokers are like “buyer agents” for mortgages. They work with a number of direct lenders, and usually shop your loan among them to get you the best rate and terms. But at the outset, you don’t know usually know where your loan will be placed and who the ultimate underwriter is. It can end up getting placed with a big money center bank that may not be the best choice for a mortgage on rural property.

It all comes down to the individual mortgage broker. In my experience, many city and suburban mortgage brokers don’t have a lot of experience with rural properties, and when you ask them whether there will be any issues with getting a mortgage on a property with a cesspool or a property on a private or accessed via a right of way, you get the same answer you’d get from the loan officer at your local Chase branch in Brooklyn — “No problem.”

On the other hand, a mortgage broker who does have a lot of experience with rural property can be worth their weight in gold. If you have an “iffy” property that may have an issue, they’ll generally know of a lender who will do the mortgage, or have access to portfolio lenders as a backstop. How can you tell if the mortgage broker might be a good fit? For rural property, they’ll almost always ask for a copy of the listing right away, so they can look it over for any red flags. They’ll also likely ask you some key questions about the property — does it have road frontage, is there a road maintenance agreement on the private road, is there an agriculture lease on the farm acreage, etc. If you’re my client, and they ask for my number because they want to discuss the property, bingo! You’ve probably found a great mortgage broker.

Mortgage Resources

Conventional lenders (not portfolio). Mortgages on ‘conventional conforming’ properties,

Ulster Savings Bank
For mortgages in Sullivan County, you may want to contact one of the following, who are very familiar with Sullivan County real estate and mortgages:

Susan Boersema sboersema@ulstersavings.com (845) 294-7922

Paola Aguilar paguilar@ulstersavings.com (845) 978-5236

Rondout Savings Bank

Portfolio lenders (lend on non-conforming properties)

First National Bank of Jeffersonville 845-482-4000

NBDC (formerly National Bank of Delaware County 607-865-3210