If you may require financing, talking to a mortgage lender is the FIRST thing you should do before shopping for your mountain dream home.  This way you will know exactly how much you can afford, and not fall in love with something out of reach.  Your income, assets, and debt-to-income ratio will all be considered.  Refer to Our Partners page for lender recommendations.  You are free to use whomever you choose and are not required to use one of our partners.  *We recommend that you consult with a lender, attorney, and/or tax adviser prior to making any major real estate or financial decisions. 

PAPERWORK REQUIRED TO START THE MORTGAGE LOAN PROCESS

Applying for a mortgage loan is laborious and invasive.  Every aspect of your finances will be scrutinized.  You need to be completely honest and forthcoming as banks have ways of finding hidden funds.  

You will need:

1. Photo ID

2. Two years of W2s

3. Thirty days of pay stubs

4. Two years of federal tax returns

5. Sixty days or a quarterly statement of all asset accounts including your checking, savings and any investment accounts

6. Letters explaining Gifted funds

7. Rental history if applicable

PRE-QUALIFICATION VS. PRE-APPROVAL  

Pre-qualifying is the first step, and can be done online on most lenders' websites by answering a few questions.  This will give you a basic idea of how much of a loan you'll likely qualify for.  Pre-approval is the second step, a conditional commitment to actually grant you the mortgage.  In a competitive market, you will need the pre-approval letter to accompany any offers you wish to make.  Sellers need to know that you can afford the home before they take the home off the market upon accepting your offer, and lose any other potential buyers.  

GENERAL INFO ON LOAN TYPES

The following information is intended to provide you with a general understanding of the quirks in rural and off-grid home loans so you will have a basis for discussion with your lender. Terms and conditions may change at any time.

CONVENTIONAL FINANCING FOR HOMES ON THE GRID

Mountain homes tied into city water, electric, and sewer are appropriate for conventional mortgages as long as all of the bank’s criteria are met.  General criteria include:  1) There must be sufficient comparable properties (“comps”) to assess the home’s market value (an appraisal will be conducted to confirm the market value before money is lent);  2) the home must be used year-round; and 3) the home must have adequately maintained road access.  A Private Road Agreement may be required if the road to the home and neighboring roads are not maintained by the County.  (All neighbors will have to agree to and sign the Private Road Agreement, which will be filed with the county.  Road maintenance may include grading and repairs in addition to snow removal.)

LOANS FOR OFF-GRID HOMES - BANK LOANS

Off-grid homes (having their own power and water source and a septic system) do not always qualify for traditional mortgages under FNMA “Fannie Mae” or FMAC “Freddy Mac” (government sponsored/secondary) mortgages.   A loan from a local bank may be your best bet.  

A typical bank loan on an off-grid home requires a 25% down payment and a good credit score.  You may be offered a 3-, 5-, or 7-year adjustable rate mortgage (ARM), possibly with a balloon payment (remaining amount paid in full)  at the end of the loan term.  And furthermore, off-grid mortgages usually come with a standard 1% interest rate penalty.   This penalty could be waived, but in return you will end up with a higher interest rate. Please check with a bank for the current rates and fees.  Another option would be to check with a local credit union. Ask about construction loans also. 

There are new regulations for bank loans making the requirements very specific and therefore more challenging:  The home must have a primary and secondary source of heat and a permanent water source.  The home must have a functional well with potable water or be tied into city water.  Solar electric heat is fine, but a cistern (underground water storage tank) is typically not when seeking a bank loan.  A wood burning stove would not suffice as a secondary source but a gas-powered generator would.  Off-grid home loans typically require at least one comparable property.  Using a knowledgeable local mortgage lender familiar with mountain homes is very helpful, rather than an online bank in another state unfamiliar with these  intricacies.  

USDA RURAL DEVELOPMENT LOANS  

The US Department of Agriculture has loans available to assist people who live in rural areas.  These loans offer no down payment, no limit on loan amount, no assets, flexible credit, and fixed interest rates.  USDA Loans are for new and existing properties. 

Please see USDA Individual loans website for more information.  

Please also see USDA Home Loan Income Limits Colorado.

The Bank of San Juan has numerous locations in Colorado and offers USDA loans.  Refer to Our Partners page for Bank of San Juan to speak with a lender to see if you qualify.

VA & FHA LOANS FOR OFF-GRID PROPERTIES

VA loans are next to impossible for off-grid homes, but if you meet the VA Eligibility and Entitlement criteria, the home is to be your primary residence, is tied to the grid, and meets the health and safety Minimum Property Requirements it could be possible.  Understanding the VA’s Minimum Property Requirements  

You may be eligible for an FHA loan if the home meets The FHA's Minimum Property Standards and you qualify in the financial sense.

OTHER FUNDING

Owner Financing could be another way to finance your purchase.  This means that you would make a monthly payment directly to the seller, per the terms of  a written, legally binding real estate contract.  This is fairly common in rural areas, but comes with its own risks. 

For example, if the Owner has a mortgage on the home and defaults on the mortgage, the lender could foreclose on (your) home, regardless of your perfect monthly payments.  In addition, the seller holds the deed to the home until it’s paid off, not you.  He/she could potentially borrow money against the value of the home using the deed, creating a lien against the property.  Should you try to sell the home in the future, this lien would be repaid from your proceeds from the sale of the home.  And finally, you risk having the seller tell you what you can and cannot do with the property, and you will wind up feeling like a renter.  There may be additional risks not outlined here, so please do further research if this is your chosen route.  Please consult an attorney and tax adviser prior to making any major real estate or financial decisions!.

Homeowners insurance will be required if you will be financing your mountain home purchase.  You should have insurance even if you are not financing.  Homeowners insurance in remote areas has become more expensive in recent years due to payouts on catastrophic natural disasters including forest fires. 

The cost of insurance will be factored into your monthly mortgage payment, along with annual property taxes divided by twelve.  Annual taxes are pulled from county assessors records and noted on the MLS listings.  Tax and insurance increase your monthly mortgage payment, sometimes significantly.  Click here for a monthly mortgage calculator that includes tax and insurance. 

Before a policy is issued, a representative from the insurance company will usually inspect the property to determine whether it conforms to the Firewise guidelines, which can be found at www.firewise.org.  The seller, or even the buyer, may be required to cut some trees down, limb them up, or have deadfall and debris removed from the perimeter of the home to be in compliance.  The insurance guidelines also stipulate that there should be a fire station within a certain proximity to the home.  This will be addressed in the insurance policy underwriting process, and is important to know in your overall home search process.  Map of Colorado Fire Stations

Some companies have stopped providing coverage for mountain homes altogether, such as USAA.  It would be wise to check with your current insurance company to see what their policy is for mountain homes.  Your best bet is to shop locally.  Refer to Our Partners page for recommendations.