Dreaming of a Taos retreat but unsure how to finance it? You’re not alone. Second homes feel simple on the surface, yet lender rules, HOA details, and mountain-market quirks can complicate approval. In this guide, you’ll learn how lenders define a second home, which loans typically work, what affects your rate, and what to check in Taos before you tour. Let’s dive in.
What counts as a second home
A second home is a property you plan to use for vacation or part-time living, not your primary residence. Lenders expect it to be suitable for year-round occupancy. If you plan to rent it frequently, many lenders will treat it as an investment property instead, which usually brings stricter terms.
Second home vs investment property
- Second home: Owner-occupied on a part-time basis for personal use.
- Investment property: Rented frequently or primarily held for income. Expect higher down payment, different underwriting, and pricing.
Which loans typically work
- Conventional loans: Common for second homes, with occupancy statements, stronger credit expectations, and larger down payments than a primary home.
- Jumbo loans: Used when your price exceeds the county’s conforming limit. Requirements vary by lender and often include larger down payments, stronger credit, and more cash reserves.
- Portfolio or specialty loans: Some banks or credit unions may finance unique scenarios, but still with stricter second-home standards.
- Programs usually not available: FHA, VA, and USDA are intended for primary residences, not second homes, except for rare VA situations tied to primary occupancy.
What affects your approval and rate
Lenders view second homes as higher risk than primary residences. Expect tighter underwriting and modestly higher rates or fees.
Credit and debt-to-income
Stronger credit helps. Many lenders look for scores in the mid-to-high 600s or above, with best pricing often at 700 or higher. Debt-to-income limits follow conventional guidance but are often applied more conservatively for second homes.
Down payment and loan-to-value
- Conforming second homes: Many lenders look for 10 to 20 percent down. Some may require 15 to 20 percent based on risk.
- Jumbo second homes: Commonly 20 percent or more. For higher-risk profiles, 25 to 30 percent is not unusual.
- Private mortgage insurance: Some lenders allow PMI on conventional second homes, but many prefer higher down payments to avoid it.
- Rental plans: If you plan to rent the property, a lender may reclassify it as an investment, which usually requires a bigger down payment and carries higher rates.
Cash reserves
Expect to document several months of reserves. Lenders often want 6 to 12 months of principal, interest, taxes, and insurance on hand. Jumbo programs may require more. Retirement accounts can sometimes count if the funds are accessible and properly documented.
Income documentation
Standard verification applies. Be ready with recent pay stubs, W-2s, and tax returns. Self-employed buyers often need two years of returns, plus K-1s, 1099s, and profit-and-loss statements. If you have multiple income sources, consistency and documentation matter.
Appraisals in ski markets
In Taos and the Enchanted Circle, appraisals can be challenging due to unique properties and seasonal sales patterns. Expect a full interior and exterior appraisal. Some lenders use conservative valuations in resort areas, which can affect loan-to-value and final approval.
Rates and fees
Rates for second homes are often slightly higher than for primary residences. Some lenders apply loan-level price adjustments or additional fees based on credit score, loan-to-value, and occupancy.
Condos, HOAs, and Taos property types
Condos and mountain properties can present extra layers for underwriting. Planning ahead helps you avoid surprises.
Warrantable condo projects
Conventional lenders and agencies often require a condo to be “warrantable.” That means healthy HOA finances, appropriate insurance, limited commercial space, and acceptable owner-occupancy levels. Mountain condo projects with heavy short-term rental activity or irregular structures are more likely to be non-warrantable. Those may require a portfolio lender, higher rates, or bigger down payments.
HOA dues and assessments
High HOA dues and special assessments impact your debt-to-income ratio. Lenders will review the HOA’s budget, delinquencies, reserve funding, and any planned capital projects. Request these documents early and review them carefully.
Rental rules and short-term rentals
If you plan to use short-term rentals, confirm local and HOA rules first. Many lenders classify properties with frequent short-term rentals as investments. That can change your down payment, reserves, and interest rate. Make sure your intended use matches the loan program.
Cabins, access, and utilities
Detached homes can be easier to finance than non-warrantable condos. In mountain areas, lenders and appraisers will look at access roads, seasonal accessibility, private wells and septic systems, and whether year-round utilities and services are available. These details can affect insurability and valuation.
Insurance and local hazards
Insurability is a key part of second-home financing in northern New Mexico’s mountain communities.
Hazard insurance basics
You will need a homeowners or hazard policy that covers replacement cost and local risks, with your lender listed as loss payee. For condos, lenders also review the HOA’s master policy.
Wildfire, wind, and winter storms
Wildfire risk, high winds, and heavy snow can affect insurance availability and premiums. Roof snow-load, winterized plumbing, and reliable road plowing may be relevant to underwriting. Lenders and appraisers also consider whether the home is suitable for year-round occupancy.
Flood risk
If a property is in a FEMA-designated flood zone, flood insurance will be required. Even outside mapped floodplains, localized drainage can matter. Check flood maps and ask about any elevation certificates during due diligence.
Your pre-tour preparation checklist
Before you fly in or start booking showings, set yourself up for a smooth approval.
Personal financial documents
- Two recent pay stubs covering 30 days.
- Last two years of W-2s. Self-employed borrowers: two years of federal returns plus K-1s, 1099s, and profit-and-loss statements as needed.
- Two months of bank and investment statements, with explanations for large deposits.
- Asset statements showing required reserves, including retirement accounts if applicable.
- Photo ID and social security number for the credit pull.
Property documents to request
- HOA and condo documents: CC&Rs, budget, recent meeting minutes, insurance declarations, owner-occupancy percentage, and the lender’s condo questionnaire.
- Recent tax bills and typical utility costs.
- Any rental history or management agreements, if applicable.
Proving your primary residence
For second-home classification, your lender may ask for evidence of your primary home, such as a deed or mortgage statement and utility bills with your address.
Talk to your lender early
Choose a lender familiar with Taos and ski-area second homes. Discuss down payment sources, reserve requirements, gift funds, and appraisal timelines. If you are eyeing specific condo projects, request pre-screens for warrantability.
Local checks for Taos and the Enchanted Circle
Local rules and conditions can affect both financing and ownership costs.
Property taxes and assessments
Confirm property tax rates, exemptions, and payment schedules with Taos County offices. Some areas include special assessment districts for roads or water that add to your budget.
Short-term rental licensing
City of Taos, Taos County, and resort municipalities may require licensing, occupancy limits, and lodging tax registration. HOAs may have additional restrictions. Verify rules before you apply for a second-home loan if you plan any rentals.
Wells, septic, and utilities
Many homes use private wells and septic systems. County health requirements for inspections and certifications can influence timing and insurability. Ask early about system age, permits, and any recent service.
Road access and winter maintenance
Confirm who maintains the road and whether winter access is reliable. Lenders and insurers want to know if the property is accessible year-round.
Smart next steps
- Get prequalified with a lender experienced in second homes and Taos-area properties.
- Confirm your down payment and calculate likely reserve requirements for your target price and loan type.
- If you are considering condos, request HOA documents and a warrantability review early.
- Speak with an insurance professional who understands wildfire, flood, and winter-storm coverage in mountain markets.
- Check local and HOA short-term rental rules if you plan to rent the home.
Buying a second home in Taos should feel exciting, not confusing. With clear lender expectations, the right documents, and a plan for local factors like HOA rules, access, and insurance, you can move from browsing to closing with confidence. If you want a curated list of properties and on-the-ground guidance tailored to second-home financing realities, connect with The Hoffmann Team for local expertise and a smooth search experience.
FAQs
How much down payment do I need for a Taos second home?
- Many conforming second-home loans require 10 to 20 percent down, while jumbos often start at 20 percent and can reach 25 to 30 percent based on risk.
Do lenders allow Airbnb income for a Taos second home?
- If frequent short-term rentals are planned or allowed, lenders may classify the home as an investment property, which changes your loan options and terms.
How do HOA rules affect financing for Taos condos?
- Lenders review warrantability, budget strength, insurance, and owner-occupancy. Non-warrantable projects often require portfolio loans and larger down payments.
What insurance costs should I plan for in the mountains?
- Hazard insurance is required, and wildfire, wind, snow, and flood risks can raise premiums or affect availability. Lenders will require proof of adequate coverage.
Are rates higher for second homes than primary residences?
- Yes, second-home rates are typically modestly higher and may include extra pricing adjustments or fees based on risk factors.
