If you’ve ever wanted a ski home, now is your opportunity: superstar Tom Cruise just listed his getaway estate in mountain hot spot Telluride, CO. All you need is $59 million, and the 10,000-square-foot-home on 298 acres is yours.
If that’s a bit out of your price range, it doesn’t mean you can’t attain your goal of having your own mountain getaway. A ski home can be yours in five easy steps.
1. Understand the total cost of owning a ski home
First, determine what you can afford. To do so, have your lender look at the following:
- Cash available for down payment, closing costs and reserves.
- Total monthly cost on your existing home, plus the total monthly cost on the ski home (including principal, interest, taxes and insurance for both homes).
- Total cost to manage the ski home, including homeowners’ association (HOA) dues.
You also need to consider budget items that lenders don’t use in their qualifying calculations, but that are still important for your own financial planning:
- Gas, electric, cable TV and internet, if these items aren’t covered by the HOA dues.
- Housewares such as dishes, cookware and linens.
- Travel costs to reach your ski home for your desired number of visits each year.
- Ski passes and outdoor gear (for winter and summer): skis, boots, poles, snowboards, mountain bikes, kayaks and more.
- Property maintenance like snow removal, cleaning and general upkeep, if these items aren’t covered by the HOA dues.
2. Decide between second home or investment property
Before estimating your costs for the purchase transaction, you first need to consider how you intend to own the property and how much you intend to use it. There are two options:
- Second home. In this scenario, you’d own your ski home with the intent of using it only for your family and friends. Mortgage rates for second homes are the same as they are for primary residences, so your rate will be the lowest it can be. Most lenders require as little as 20 percent down for a second home. Your full primary residence housing cost plus your full second home cost will be used to qualify your loan. The fine print of most lender terms on second homes prohibit renting the home.
- Investment property. You’ll use this scenario if you intend to rent the home in addition to using it as a family property. Mortgage rates are .25 percent to .375 percent higher than second home rates, and minimum down payment requirements are 30 to 35 percent. You can use rental income to help qualify for the mortgage, and the extra income from renting the property when you’re not using it might also make owning a ski home more financially feasible.
3. Review monthly and transactional cost line items
Supposed you wanted to purchase a property in Telluride, CO selling for $525,000. Here’s how much it would cost to buy it as a second home versus an investment property.
- Second home. If you put 30 percent down, your estimated total monthly cost would be $3,586, and your estimated total cash to close would be $177,750. The monthly cost estimates include $1,781 for a 30-year fixed mortgage at 4.125 percent, $1,625 HOA dues, $30 insurance and $150 property tax. The cash to close estimates include $157,500 for 30-percent down payment, $15,750 for 3-percent Telluride transfer tax, $2,500 lender fees and $2,000 title/escrow/inspection fees.
- Investment property. If you put 30 percent down, your estimated monthly cost would be $3,667 (before any rental income you’d receive), and your estimated cash to close would also be $177,750. The monthly cost estimates are $1,862 for a 30-year fixed mortgage at 4.5 percent, and the same as above for HOA dues, insurance and property taxes. The cash to close breakdowns for a 30-percent down payment are the same as above.