Have you dreamed of purchasing a vacation home but wondered if you could buy a second home with a reverse mortgage? If so, it’s time to quit dreaming and start making calculations because you can indeed use the proceeds from a reverse mortgage to purchase a second residence.
You’ll need to have substantial equity in your primary residence in order for this strategy to work, as only primary residences qualify for reverse mortgages. Depending on the amount of money received from the reverse mortgage and the price of the vacation home being considered, it is possible that a vacation home could be bought outright. In cases where the reverse mortgage proceeds won’t pay for the vacation home in full, it may be possible to take out a traditional mortgage on the vacation home for the remaining amount of the purchase price.
You will need to make sure you read the fine print of your reverse mortgage. For instance, it is imperative that the vacation home will remain a second home, rather than become a primary residence. If you do not follow the rules of your reverse mortgage and lose primary residence status on your original home, it will likely count as a maturity event according to the National Reverse Mortgage Lenders Association. The maturity event would allow the bank to require repayment of the reverse mortgage according to the terms of the loan. If the reverse mortgage is not repaid, the bank could foreclose on your home.