Refinancing a vacation home requires sharp focus on goals

What's the downside of having a vacation home? Having a vacation-home mortgage is one, for starters.

If you're considering refinancing a vacation home, make a list of what you want from the transaction before you start shopping. Keep those goals in focus.

"The whole value of refinancing is to lower your monthly costs," says Barry Zigas, housing director for the Consumer Federation of America.

As for how long it should take you to recoup refi costs, "There's no obvious right answer," Zigas says. "It depends on your personal situation."

A potential lender will often request two years of income records, two months' bank statements, your credit reports and an income analysis, says Patti Frank, vice president for Americana Mortgage Group, based in Manhasset, N.Y.

Your debt-to-income ratio -- the ratio of your total debts to pretax income -- is an important measurement of affordability. Frank says most lenders don't want borrowers to stretch past a 40 percent debt-to-income ratio.

In some cases, a lender will go to 45 percent, says Carl Noriega, president of the Florida Association of Mortgage Professionals.

Lenders often want at least two months' worth of payments, taxes and insurance in the bank, says Matt Hackett, underwriting and operations manager for Equity Now, a direct mortgage lender in New York City. They'll want a list of assets, too.

If everything runs smoothly, refinancing takes about the same amount of time as a regular mortgage -- about 30 to 45 days, Noriega says.

You don't find out how much equity you truly have until the lender's appraisal comes back about halfway through the loan-underwriting process. So when you self-assess equity before loan-shopping, be ruthless.

If you study comparable properties, make sure they really are comparable, with similar age, size and composition. Consider recent sale prices only, not asking prices or old sales. And that foreclosure down the street that's just like your place? Count it.

If you have more than one mortgage on your vacation home, refinancing gets more complicated.

Unless both your mortgages were made simultaneously and used exclusively for buying that home, rolling two mortgages into one when you refinance is often classified as a cash-out refinance, Hackett says. With a cash-out transaction, lenders want to see more equity in the home, Hackett says.

Instead of consolidating two loans, you could pay off the second mortgage before refinancing. Or you could refinance only the first mortgage, if the second mortgage lender will allow it, in a process called subordination.

Without subordination, a lender won't refinance your first mortgage, Frank says. And not every second-mortgage holder will agree to subordinate, she adds.

Late mortgage payment in the past year? "You're going to have a very hard time refinancing," Frank says.

If you've had a short sale in the last two or three years, that could hurt you, Noriega says.

Lenders want to see that your salary -- not your investments or savings -- will be enough to make the payments, Frank says.

If you plan to refinance around the same time as a career change or retirement, you'll have more loan options if you refinance before that salary flow is disrupted, says Michael Moskowitz, president of Equity Now.

A logical place to start shopping is the institution that made the initial home loan.

Then you should shop around just "like anything else," says Stanley D. Smith, a professor at the University of Central Florida.

Talk to real-estate and lending pros where the vacation home is located, he says. They're going to have the best idea of the current local market and property values. Compare that to the options you find where you live year-round, Smith says.

When you ask about cost, you deserve a straight answer. Even so-called no-cost refis have fees built into the loan. Ask the potential lender to itemize the fees and explain them all.

Mortgage rates are little changed the week of Sept. 12 as investors anxiously await the Federal Reserve's meeting scheduled for next week.

The 30-year fixed-rate mortgage fell 1 basis point to 4.71 percent. A basis point is one-hundredth of 1 percentage point.

The 15-year fixed-rate mortgage rose 1 basis point to 3.75 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, rose 1 basis point to 4.89 percent.

The 5/1 adjustable-rate mortgage was 3.65 percent, the same as last week. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.