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Followup: Purchasing and financing a second home in retirement..
Old 03-04-2020, 11:29 AM   #1
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Followup: Purchasing and financing a second home in retirement..

My original post on financing a second home in retirement is now too old to add comments to, so I'm creating this new follow up post.



I'm commenting on the process of finding a place to buy, my thoughts about the place I chose, and how I plan on financing it.





My goal:
- Find a second home to purchase in an area that I like, and figure out the best way to finance it as a second home in retirement.



What I did:
- I rented from VRBO in January and February in two areas of Florida that I was interested in based on multiple factors. (Venice/Sarasota, and Bonita Springs).

- I looked at about 10 properties while I was vacationing down there.

- I ended up making an offer, and I'm in the process of purchasing a slightly older (1989) town home in the community that I stayed at in Bonita Springs.



My comments/thoughts about the home I'm buying:
- I really liked the town home as soon as I walked into it. I also stayed in this community for a month in a different town home, and I very much enjoyed the area, and people I met living there.

- The town home has a big open main level floor plan with a beautiful screened in porch, a big outdoor private patio with tropical bushes and plants all over, and a sun deck off of the upper level master bedroom. All facing the south. I want lots of sunlight all winter.

- It does have both bedrooms upstairs, so it is not a single level. The bedrooms are large, and they have their own separate bathrooms. There is also a half bath and laundry room on the main level.

- The main level has beautiful large tile floors throughout.

- I wanted a two car garage, but it only has a single detached.

- Some updating will make it even better, but it is perfectly acceptable as is. It came furnished, so I can use it right away, and change the furnishings more to my liking over time.

- I'm obviously excited to have a place to stay in warm weather throughout the winter months. I'm basically diving head first into being a snowbird.

- The association for the town home seems to be run well. Everything looks well maintained. The costs have been kept very low in my opinion, and they cover the lawn care and the maintenance of two beautiful community pools. One of the pools is a short walk from my place. I believe this is a much better setup to leave unattended for 6 months, compared to a private home.

- My plan is to keep my main residence in Minnesota. I have too many social connections there. The town house was priced low enough that I can afford to keep and maintain both places.

- I'm looking at this as a winter cabin. I already have friends and family talking about visiting me down there, and I would like that. Even if that doesn't happen, I will be much more active in the winter in the warm climate of SWFL. I'm walking or bike riding outside every day, and visiting the pool or beach most afternoons. I still like home projects, so I will have a place to work on at my discretion. I also very much enjoy coffee out on the patio in the mornings, and possibly a few drinks out on the porch in the evenings before dinner. That isn't happening in Minnesota in January.





Financing:
- The price was low enough that I could just pay cash, but I would use up all of my liquidity and Roth accounts doing this. I don't like that idea.

- I'm going to put 20% down, and take out a new mortgage against my paid off home in Minnesota. The rates are still very low. I went through a pre-qualification process, and they acted like it will not be a problem. So far, so good. Maybe worse case I will have to put more cash down.

- I still have the option of selling or downsizing my main residence in Minnesota if I feel financially tight with the new payments. I haven't had a house payment in 20 years. I think I will be fine.



Thanks for all of your previous comments, and of course I would enjoy hearing opinions on what I've gotten myself into.



Take care, JP
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Old 03-04-2020, 01:18 PM   #2
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Did you consider an asset depletion mortgage?
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Old 03-04-2020, 01:47 PM   #3
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TJ,
I'm ignorant on that type of loan. What is it?


I considered just using a HELOC, but I would need to apply for a larger one, and the rates are variable. Decided against that.



JP
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Old 03-04-2020, 01:54 PM   #4
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An asset depletion loan is (I think) a loan based on your assets as opposed to your income. I just bought another home and had to go that way, since our income in retirement, while not insignificant, wasn't enough to qualify for a regular mortgage. There's no real difference as far as interest rates and such, just a few more hoops to jump through.

This is a good time for it, rate-wise. Good luck.
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Old 03-04-2020, 02:06 PM   #5
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I suspect this is what I'm getting.



You would not believe all of the information they are gathering on me. I suspect, because I don't have much of an income. I have no idea what accounts they can technically go after if I default on the loan.



They are also requesting that I increase my monthly IRA withdrawal. I'm assuming they consider this income if it is a consistent withdrawal, but it can be changed at any moment.



I'm waiting for them to ask me what color underwear I wear, and my preferred adult beverage, but so far they haven't requested this information.



JP
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Old 03-05-2020, 10:40 PM   #6
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If you can qualify for an income-based loan, the rates will be lower. Now is a great time to borrow!
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Old 03-06-2020, 05:53 AM   #7
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Smart to rent in area before buying. You seem focused on the mortgage. Iíve owned a second home for 5 years. Other costs like property taxes, home insurance, utilities, WiFi/TV, and commuting expenses are just as important. Our 2nd house is for lake access and only 20 miles away, but we love it!
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Old 03-06-2020, 06:41 AM   #8
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Originally Posted by WhenIsItTime View Post
Other costs like property taxes, home insurance, utilities, WiFi/TV, and commuting expenses are just as important.
Two things that might blow up on you: home insurance and assessments. You're in a hurricane-prone area and the premiums will only go up. You also mentioned that the association has kept costs low- do they have any reserves? What expenses does the Association cover? An example would be pool maintenance. Another might be a club house if they have it. I'm on an HOA Board and when I joined the previous Board had kept the annual fees nice and low for years but they had almost no reserves. When work needed to be done on the spillway of the dam that forms our lake, we needed to assess everyone $750. For some that was a hardship. Fortunately we've managed to get dues increases over the years and built up more substantial reserves- the lake will need dredging soon!

But- congratulations on finding a way out of the Minnesota winters. I'm in Kansas City so not as bad, but next winter I may have to find excuses to visit my brother who just retired to Melbourne, FL!
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Old 03-06-2020, 07:20 AM   #9
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Originally Posted by athena53 View Post
Two things that might blow up on you: home insurance and assessments. You're in a hurricane-prone area and the premiums will only go up. You also mentioned that the association has kept costs low- do they have any reserves? What expenses does the Association cover? An example would be pool maintenance. Another might be a club house if they have it. I'm on an HOA Board and when I joined the previous Board had kept the annual fees nice and low for years but they had almost no reserves. When work needed to be done on the spillway of the dam that forms our lake, we needed to assess everyone $750. For some that was a hardship. Fortunately we've managed to get dues increases over the years and built up more substantial reserves- the lake will need dredging soon!

But- congratulations on finding a way out of the Minnesota winters. I'm in Kansas City so not as bad, but next winter I may have to find excuses to visit my brother who just retired to Melbourne, FL!
Athena,

I'm concerned about the HOA too. I've heard plenty of horror stories.

What I learned or was told about the HOA:

No major improvements were planned in the near future.
They had replaced all the roofs in 2009 with metal shingles that look like tiles, and are supposed to have a lifetime warranty, even though that doesn't seem possible.
Roads look decent, and periodic recoatings are scheduled.
They have a $600k annual budget, and their reserves are close to $600k.

My realtor has lived there for 25 years, and said the president of the HOA is an amazing guy, and keeps everything running very well.

It is a townhome community, so it avoids a bunch of condo rules according to her.
She said they are fairly liberal on community rules.
They did recently add a rental stipulation of 30 days minimum.

I'm hoping for the best.

JP
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Old 03-06-2020, 08:12 AM   #10
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Quote:
Originally Posted by WhenIsItTime View Post
Smart to rent in area before buying. You seem focused on the mortgage. Iíve owned a second home for 5 years. Other costs like property taxes, home insurance, utilities, WiFi/TV, and commuting expenses are just as important. Our 2nd house is for lake access and only 20 miles away, but we love it!

WhenIsItTime,
The monthly HOA, taxes and insurance are all fairly reasonable. It is in the $500/month range.

I never thought about electricity and water. I suppose it won't be cheap keeping the AC running all summer to keep the mold down.

I think the garbage pick up is part of the HOA.

I will want WiFi. My realtor that WiFi could be purchased for around $50/month. I hope she is correct on that.



Yes, it all ads up. Nothing is easy.



Take care, JP
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Old 03-06-2020, 09:22 AM   #11
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I set my AC at 78 for the months we are away, which keeps any mold at bay. The house is well insulated, with new windows and doors (Miami-Dade regulation), and with nobody coming or going to let the cool air out the electric bill is very reasonable. If you're an inside unit you're probably fine, end unit may be less optimal that way. You could probably pay a couple hundred bucks (or less to have extra insulation blown into your attic (if you have one). It makes a big difference.
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Old 03-06-2020, 10:35 AM   #12
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I set my AC at 78 for the months we are away, which keeps any mold at bay. The house is well insulated, with new windows and doors (Miami-Dade regulation), and with nobody coming or going to let the cool air out the electric bill is very reasonable. If you're an inside unit you're probably fine, end unit may be less optimal that way. You could probably pay a couple hundred bucks (or less to have extra insulation blown into your attic (if you have one). It makes a big difference.

Harley,
I'm in a corner unit, facing the south and east directions. Not ideal for energy conservation, but I really wanted a southern view with lots of sunlight for the winter months when I will be there.
My lower south side has a screened in porch, so that will cut back on direct sunlight into my large patio windows

The home inspector that I hired said the attic had 8" of insulation. The exterior walls are concrete covered with stucco, and the metal roof tiles are a very light color. Hopefully it won't be too bad.


Did they make you upgrade windows? I've heard you get a discount on the hurricane insurance if you get the hurricane rated windows. Mine are just the original old metal framed windows.



On a personal note:
I thought you were a full time resident. What months do you stay down in Florida? Did you change over to Florida residency for tax purposes?


What kind of kayak are you using in the inter coastal waters? No concern for alligators? I swim all of the time in a lake up in Minnesota in the summer, but I have my reservations about kayaking with alligators.



Take care, JP
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Old 03-06-2020, 12:10 PM   #13
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Quote:
Originally Posted by JP.mpls View Post
Harley,
I'm in a corner unit, facing the south and east directions. Not ideal for energy conservation, but I really wanted a southern view with lots of sunlight for the winter months when I will be there.
My lower south side has a screened in porch, so that will cut back on direct sunlight into my large patio windows

The home inspector that I hired said the attic had 8" of insulation. The exterior walls are concrete covered with stucco, and the metal roof tiles are a very light color. Hopefully it won't be too bad.
The light colored tiles will probably help, but when we recently had our raccoon invasion in our MD home and had to remove and replace insulation they told me the new standard is 13". It really isn't very expensive to have it blown in.

Quote:
Did they make you upgrade windows? I've heard you get a discount on the hurricane insurance if you get the hurricane rated windows. Mine are just the original old metal framed windows.
No, but when we bought the place 7 years ago we had the old metal frame windows too, and every single pane was cracked. It was a major expense, but you do get a significant insurance break, plus the new windows/doors make for pretty serious security, since they're practically unbreakable. We were told it would be easier to break through the cinder block walls than come through the windows. Of course, the door lock can always be picked.

Quote:
I thought you were a full time resident. What months do you stay down in Florida? Did you change over to Florida residency for tax purposes?
We're legally FL residents, but we're snow birds. We just make sure we don't spend 183 days in MD, and other than that we're pretty flexible. We're usually here between the beginning of Nov through the end of April, at least. It was definitely a tax decision, as we do have income from our small business.


Quote:
What kind of kayak are you using in the inter coastal waters? No concern for alligators? I swim all of the time in a lake up in Minnesota in the summer, but I have my reservations about kayaking with alligators.
I use a 10' sit in Wilderness kayak, but when my friends rent theirs they get sit on tops. I'm not in the least concerned about gators in the rivers or bays, but although we do see them. Hiking past them is a different issue, but even then as long as they aren't raised up and hissing we just usually just go on by. We definitely don't swim in the gator infested waters, although I do in the Gulf. Even there you should be on the lookout for stingrays at least, and they do occasionally pull a gator out of the Gulf. Most people do their swimming in pools.

I think you'll enjoy life down here. It's pretty relaxing, and there's a lot to see. I love the Everglades, and Bird Rookery Swamp is a great place to hike as far as wildlife. I've seen tons of birds and gators, snakes, otters, and even the occasional bobcat. I never wanted to move down here, and only did it because DW was having so much trouble with the winters up north. But now I'm probably more of fan than she is.
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Old 03-06-2020, 01:28 PM   #14
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I suspect this is what I'm getting.

They are also requesting that I increase my monthly IRA withdrawal. I'm assuming they consider this income if it is a consistent withdrawal, but it can be changed at any moment.

JP
Are you going through a mortgage broker or bank/credit union?

It sounds like they are using income if they care about your IRA withdrawal.

I donít know anyone who has done a AD loan, thatís why I was curious, since that would be my only option.
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Old 03-06-2020, 03:27 PM   #15
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TJ Evans,
I will find out, but my income is very limited.

I don't have a pension, and I am retired.

My only income is SS, and the withdrawals I make from my IRA.

I am set up with consistent monthly withdrawals.

JP
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Old 03-08-2020, 12:41 PM   #16
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TJ Evans,
I checked the quotes the mortgage guy sent me, and he described what I'm doing as "a refinance loan".

I didn't have an existing mortgage, but I did have a HELOC tied to my paid off home.
Searching "refinance loan" on Google, it is definitely tied to the equity in my home.

I suspect that the HELOC is being closed down, and replaced with this new loan.

I will confirm this.

JP
Quote:
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TJ Evans,
I will find out, but my income is very limited.

I don't have a pension, and I am retired.

My only income is SS, and the withdrawals I make from my IRA.

I am set up with consistent monthly withdrawals.

JP
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