A common question among reverse mortgage borrowers is whether or not they can take out a reverse mortgage on their second home. Currently, the rule is that reverse mortgage loans must be used for primary residences only. However, the proceeds a borrower receives from the reverse loan can be used to help purchase a second home.
Usually, if the homeowner does not live in a home for 12 consecutive months, the property is not considered the primary residence. And if you have an FHA-insured Home Equity Conversion Mortgage (HECM), aka reverse mortgage, and you do not live in the home for 12 consecutive months, the HECM could be called due.
Typically, reverse mortgage proceeds are used to help senior homeowners “age in place,” helping them make their current homes more comfortable, accessible or helping them pay for living expenses that aren’t fully covered by their main source of income. Be that as it may, there’s no rule that dictates how reverse mortgage borrowers are allowed to spend their money.
If it’s a dream of yours to have a second home by the beach or you’d like to invest in a vacation home near your relatives, you can absolutely use the money from your reverse mortgage to help fund those costs. However, most experts agree that using reverse mortgage proceeds to make luxury purchases can be risky. Be sure to carefully weigh the pros and cons and take an honest look at your finances before committing to the purchase of a second home.
Creating a Winning Strategy
If you’re interested in paying for a second home with the reverse mortgage on your primary residence, you should research reputable reverse mortgage lenders who service your area AND try to enlist the help of a professional financial advisor. When you work with experienced professionals, they can help you develop a homeownership strategy that will work best for your situation.
For example, you may be able to take out a reverse mortgage to simply lower the payments on your existing primary residence, thus freeing up money to make payments on a conventional loan for a second home. Or, you may be able to use the lump sum proceeds from your reverse mortgage to pay in full for a vacation property.
Again, these scenarios will not be ideal for everyone. Talk to a reverse mortgage specialist at Alpha Mortgage or contact a homeownership counselor for more information.