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one way to finance second home
Old 10-15-2017, 06:39 AM   #1
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one way to finance second home

Hi All,
Once DW and I get to the point we cant or don't wish to travel as much we think we might want to buy a second home and are looking at different ways to fund the project. We also have no children and do not care if we leave a financial legacy behind. Our current home is paid for and valued about $300K and we do not include this equity in our retirement nest egg. Second home purchase budget is $300K +/- $50K. So with that said we were thinking of taking out a reverse mortgage either in a lump sum or monthly income. If lump sum we would buy 2nd home with this cash. IF we take monthly income we would finance the second home with a mortgage. in both cases we would use a very small percentage of our nest egg to complete the purchase. I see it as a way to leverage one home into two. Has anyone here done this? What are your thoughts. What am I not seeing or should consider? Thanks!!
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Old 10-15-2017, 07:05 AM   #2
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I have never done a second mortgage, but have used my Home Equity Line (HELOC) quite a bit for short term loans for real estate purchases.

That may be a option to compare.
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Old 10-15-2017, 07:15 AM   #3
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Hi All,
Once DW and I get to the point we cant or don't wish to travel as much we think we might want to buy a second home and are looking at different ways to fund the project. We also have no children and do not care if we leave a financial legacy behind. Our current home is paid for and valued about $300K and we do not include this equity in our retirement nest egg. Second home purchase budget is $300K +/- $50K. So with that said we were thinking of taking out a reverse mortgage either in a lump sum or monthly income. If lump sum we would buy 2nd home with this cash. IF we take monthly income we would finance the second home with a mortgage. in both cases we would use a very small percentage of our nest egg to complete the purchase. I see it as a way to leverage one home into two. Has anyone here done this? What are your thoughts. What am I not seeing or should consider? Thanks!!
Interesting... I am not sure about the "costs" of reverse mortgage (heard they are pretty rough), or how much you can actually get out of a $300k value home, but I'll be watching this thread.
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Old 10-15-2017, 07:34 AM   #4
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Hi All,
Our current home is paid for and valued about $300K and we do not include this equity in our retirement nest egg. Second home purchase budget is $300K +/- $50K. So with that said we were thinking of taking out a reverse mortgage either in a lump sum or monthly income. If lump sum we would buy 2nd home with this cash. IF we take monthly income we would finance the second home with a mortgage.
Are you expecting to fully fund the 2nd home purchase from the reverse mortgage? You would be lucky to get 50% ($150K) of the value of your current house from the reverse mortgage.
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Old 10-15-2017, 07:36 AM   #5
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Pilot,
The amount you can borrow is based on age and home value. At age 75 on can borrow approx. 60% of the value. At age 70 about 55%. You must maintain the home as your primary residence pay your taxes and insurance and keep up the home. Once you and your spouse no longer live in it you must sell it and the loan and interest is paid off. Any proceeds left over go to you and or your spouse. If there is a balance left after payoff the bank eats it.
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Old 10-15-2017, 07:39 AM   #6
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Zinger,
The balance would come from nest egg.
Thanks
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Old 10-15-2017, 07:49 AM   #7
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I have never done a second mortgage, but have used my Home Equity Line (HELOC) quite a bit for short term loans for real estate purchases.

That may be a option to compare.
That is exactly what i did to buy our retirement home. I believe you can borrow 70% of the value. I then rented out my original home and used the rent to make the payments.
IMO, the fees associated with reverse mortgages are very high
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Old 10-15-2017, 07:49 AM   #8
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Interesting idea. My first concern would be owner occupancy rules. Doesn't the loaner take possession of the reverse mortgage home once its no longer your primary residence? How long per year would you be allowed to live in the newly acquired home without triggering that clause? I'd be worried i'd like my second home too much and be constrained in using it.
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Old 10-15-2017, 08:00 AM   #9
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Originally Posted by fosterscik View Post
Interesting idea. My first concern would be owner occupancy rules. Doesn't the loaner take possession of the reverse mortgage home once its no longer your primary residence? How long per year would you be allowed to live in the newly acquired home without triggering that clause? I'd be worried i'd like my second home too much and be constrained in using it.
+1
I'd rather use a HELOC on the first home , to buy the second one. That way you have freedom to decide where to live 183+ days per year (residency).

I imagine if I owned 2 homes and liked them equally, then I might decide to make the one with lower State taxes my "residence".

Plus, you can rent out either one whenever you want, even part-time per year (which is tougher than some think, sometimes)
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Old 10-15-2017, 08:00 AM   #10
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What is the benefit of a reverse mortgage over a just taking out a mortgage for the second home?
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Old 10-15-2017, 08:05 AM   #11
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Why not rent the second home ?
If you are old, it's not like you will need it 30 years, it could get pretty tiring to travel with all your stuff between the homes and you might find you stop traveling to the other one.

Renting gives you the flexibility to change at low cost, where the second home is located. Thinking outside the box, you could pick a home in HI , love it for 4 years and decide it's too confining, so you stop renting it, and rent one in Puerto Rico.
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Old 10-15-2017, 08:57 AM   #12
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Why not rent the second home ?
If you are old, it's not like you will need it 30 years, it could get pretty tiring to travel with all your stuff between the homes and you might find you stop traveling to the other one.

Renting gives you the flexibility to change at low cost, where the second home is located. Thinking outside the box, you could pick a home in HI , love it for 4 years and decide it's too confining, so you stop renting it, and rent one in Puerto Rico.
+1 to renting. I would strongly consider what Sunset said above. And possibly even consider selling your current home and renting locally too. If you don't not wish to leave a legacy, why not cash it out and increase your spending?
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