One question we often get from potential clients is: Can I take a reverse mortgage out on my second home? The short answer is no, not anymore.  Prior to the financial crisis, some lenders did offer a private product that allowed borrowers to obtain a reverse mortgage on their second home.

But today, most reverse mortgages are through the Federal Housing Administration’s home equity conversion mortgage (HECM) program, which only allows for a reverse mortgage on a primary residence.

The good news is that you can use a Reverse Mortgage on your primary residence and use the cash proceeds to Purchase a Second Home or Investment Property. 

One of the great aspects of reverse mortgages is that the proceeds from your loan can be used for whatever you’d like—including purchasing a second home. There are some limitations, however.

A requirement of the reverse mortgage is that borrowers must maintain the home  as their primary residence. However, borrowers are still able to live in another residence for certain periods of time, as long as they’re away for less than 6 months of each year.  In other words, they must spend more than half of their time in their primary home.

Reverse mortgages become “due and payable” after an extended time period of not being in the home—say, for example, if someone was forced to enter a hospital or nursing home for more than 12 consecutive months.

So, if you’re thinking about buying a second home, but you’re not sure if you can afford two sets of mortgage payments along with property taxes and all the other costs associated with being a homeowner, consider using the proceeds from a reverse mortgage taken out on your primary residence.

Again, as long as you live in your first home a majority of the time and aren’t away for extended, consecutive periods of time, you will be able to also enjoy a second home.

(You can download a helpful brochure on occupancy requirements here)

Take Advantage of the Housing Market

What are some good locations for a second home? Some of the top states where older Americans often spend time or have vacation / second homes, like California, Arizona, and Florida, are also states that saw the biggest drops in home prices since the housing market decline, according to the CoreLogic home price index, meaning you could potentially get a great deal.

Home prices in these three states are down an average of nearly 48% since their market peak.

Cities like Miami and Phoenix continue to see trailing home values, Case Shiller home prices indices show, and by the end of last year, housing prices in San Francisco, San Diego, and Los Angeles sank even lower than the trailing national average, compared to 2010.

Does buying a second home in a popular vacation spot sound like something you’re interested in?  Contact us to discuss the possibility of buying your dream home using the proceeds of a reverse mortgage.