How to Use a Reverse Mortgage to Buy a Second Home?

How to Use a Reverse Mortgage to Buy a Second Home?

Reverse mortgages are relatively new products, but they have huge benefits, particularly for individuals who are hoping to purchase a second home in Colorado. The loan you receive against your first home when you choose to use a reverse mortgage can be used to purchase a second home: effectively, you are releasing the equity from one property to enable the purchase of another.

What is a Reverse Mortgage?

A reverse mortgage is a mortgage type that enables a homeowner to borrow money against the value of his or her home. Typically targeted at seniors, when you take out a reverse mortgage, no repayment of the mortgage is required until either the borrower dies or the home is sold. When you take out a conventional reverse mortgage, the loan proceeds are based on the equity in your home. With the new product, you start out with no equity because you don't own the new house yet.

Reverse mortgages are typically promoted as a way for seniors to fund the costs of their medical care, equipment, and other treatment they may retire in their old age. However, reverse mortgages are also ideal for Colorado home owners that wish to purchase a second home (perhaps as a vacation property) but are concerned that the financial obligations they already have in place for that first property (i.e. their monthly repayments) would prohibit them from securing a conventional mortgage to enable the purchase of the second property.

Reverse Mortgage Requirements

In order to be eligible for a reverse mortgage to buy a second home, applicants must be at least 62 years of age and most have a significant about of equity in place in their primary property. The home that the reverse mortgage is being secured against must be the borrowers primary residence (even if the loan is being secured in order to purchase a second home) and you can only be eligible for a reverse mortgage if you have no delinquent federal debt. Further criteria for successful reverse mortgage application revolve around the type of property you own: reverse mortgages can only be secured on single family homes, condos (provided they have been approved by the U.S. Department of Housing and Urban Development) and two to four unit homes, provided one of the units is being occupied by the senior hoping to secure a reverse mortgage on the property.

Provided you meet this criteria, there is nothing to prevent you from using your reverse mortgage to secure a second home. However it is important to note that if you have a spouse or life partner then you should consider how the application for a reverse mortgage will after their future security: if they are not included on the reverse mortgage application then they could well find that on the applicants death, there home is sold from under them and they are left without any real protection. A joint application, however, in the names of both spouses, circumvents this problem and leaves both partners protected and able to benefit from all of the positive aspects of reverse mortgage application.

Purchasing a Second Home

Obtaining a reverse mortgage in order to purchase a second home is viewed as an ideal solution for older Americans to purchase a new home that is better suited to their needs as they age (with modification for reduced mobility, for example) without having to sell their existing property and invest all of their retirement assets into the new property, as they would if they made a traditional all-cash transaction. Another benefit of using a reverse mortgage to purchase a second home is that it allows senior homeowners to avoid dipping into their monthly fixed income in order to meet their monthly expenses and the costs involved in a house move, which would occur if they took out a traditional mortgage. Effectively, reverse mortgages act like a cash flow protection tool for seniors and gives seniors more purchasing power in their retirement, without draining their existing assets.

For seniors that would like to purchase a second home without increasing their monthly outgoings and would like to maintain their quality of life without having to worry about any extra bills or unexpected expenses, securing a reverse mortgage to buy a second home is an ideal solution. Colorado seniors are able to remain in their home until their either choose to sell it or pass away, whilst also reaping the financial and social benefits of owning a second home, by choosing to opt for a reverse mortgage solution.

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