Reverse Mortgages

Using a Reverse Mortgage to Purchase An (Almost) Free 2nd Home

Can you buy a second home using a reverse mortgage?

Where do you spend your winter?

When you look out your window does it look like this?

second-home-reverse-mortgage

or this?

florida-condo

For Sale: List Price: $88,000

2 Bed 2 Bath Condo Boynton Beach, FL 33436

 

The time to invest in a second home is now:

Shelly Schwartz

Friday, 17 Apr 2015 | 10:22 AM ETCNBC.com

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Vacation home sales rose 57 percent last year over 2013, to 1.3 million properties, well above their most recent peak level in 2006, according to NAR. In fact, vacation home sales accounted for 21 percent of all real estate transactions last year, their highest market share since the survey was first conducted in 2003. NAR found in a survey that 85 percent of vacation buyers think now is a good time to purchase real estate.

You may ask:

What does that have to do with me

Aren’t second homes for the rich?

Not necessarily…

What if I told you that you could get a second home for (almost) free?

First, let me give you a little background:

I’m originally from California where the weather is perfect year-round.

california-weather

 (There’s no need to go to another location for “the season” because there’s only two – sunny and warm or sunny and a little cooler….)

Growing up, I didn’t know what “fall” was because leaves didn’t fall off of the trees. Winter simply meant nights about 10 degrees cooler.  

I know, as a child I had a very “meteorologically sheltered life” but that’s California, what can I say?

I once had a girlfriend whose mother lived in Wisconsin.  She had a very comfortable and beautiful home that she loved, close friends that visited often and, like all seniors in the Midwest, was very involved in her community.  I was puzzled that every year around October she would leave that home and head down to a little cottage in Florida where she would stay until just after Easter. 

The cottage in Florida wasn’t nearly as comfortable or even as homey as her place in Wisconsin. She didn’t have the same level of community that she had back home either.

She loved going and spending that period of the year there. I never understood until one year she stayed home for Christmas and we went there to visit for the holidays. 

 “How fun,” I thought at the time, “I’ve never experienced a White Christmas before…”

bad-weather

White was not really the right word.

It was really a “blue” Christmas… since that’s the color I turned.

From the minute we exited the airport an arctic blast of cold air engulfed me and seemed to follow me around for the duration of my visit. 

After that experience I never questioned the motives of a timely transition every year to Florida.

Now for the “What’s that have to do with me” question:        

Ask yourself:

  • Do you live in part of the country that may people leave during either winter or summer?
  • Have you always dreamed of a second home that you could retreat to during those seasons?
  • Do you own a home with little or no debt and a lot of equity?
  • If I told you that you could use your current home’s equity to buy a second home and not have a monthly payment on either of them would that be of interest to you?

If the answer to all the questions is, “Hell Yes”, then keep reading…

Let’s assume that you own a home in the Midwest valued at – $350,000.

Now let’s assume that at your age, the reverse mortgage loan value is – $200,000.

That means you could buy a condo in Florida for up to $150,000 in cash, and still have $50,000 left in reserve cash to pay, property taxes, HOA fees and any other expenses .

Ok, but how does that equal a free house?… Let me show you:

almost-free-home

Note that before the reverse mortgage there was $350,000 equity in the primary home. 

After the reverse mortgage there is still a combined equity of $350,000 but now there are 2 homes and neither have a monthly mortgage payment. 

(Note: there will be some fees associated with the reverse mortgage – it is not a cost-free transaction.)

Also before the reverse mortgage there was a total home value of $350,000 and after there is a combined home value of $550,000 again without any out of pocket expense other than the initial costs required to get into the transaction.  

I call that a FREE HOUSE!

Now most people’s first reaction is to say:

“but wait, the reverse mortgage is going to eat up future equity growth in the primary home.

How is that a free home when it actually costs something?”

Well…yes… there is a growing loan on the primary residence.

But remember, there is now appreciation growth on both the $350,000 primary home PLUS the added equity growth on the $200,000 second home.  That additional growth will offset any interest accumulated on the loan. 

Note: For more on that read – Why the FHA is important portion of this blog.

Ok, but can you buy a 2nd home for $150,000 or less?

Over 2000 Listings under $150,000 On Florida’s Treasure Coast:

treasure-coast

The picture of the golf course view is a real listing of a 2 bedroom condo in Boynton Beach Florida for $88,000. 

As you can see from the screen shot above (taken directly from the Treasure Coast MLS) within the area ranging from Jupiter Florida to the north running south to Boca Raton Florida there are over 2000 listings under $150,000. 

Keep in mind, this example is on the East Coast, the West Coast of Florida holds equal opportunities. 

As a matter of fact you can find these second home solutions all over the country ranging from Arizona in the west to the Carolinas in the East. 

Wherever you’ve dreamed of spending time in a more comfortable climate half of the year, if you have equity in your home and are over 62 years of age a Reverse Mortgage could be to catalyst to make that dream come true.   

reverse mortgage options

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