How to Use A Reverse Mortgage to Snow Bird

If you don’t know, a snowbird is the nickname for seasonal travelers who typically head south for the winter.  Top destinations for snowbirds are Arizona, California, Florida, Texas, Hawaii, Puerto Rico and Costa Rica.

Own a Vacation Home with a Reverse Mortgage

Baby boomers at or near retirement continue to propel the demand for second homes.[1]

7 of the top 10 most affordable snowbird destinations are in Florida[2]

The median sales price of both vacation and investment homes soared in 2015. The median vacation home price was $192,000, up 28% from $150,000 in 2014.[3]

If you are one of those people or want to be, a reverse mortgage might be able to make this option a reality. In fact, there are several ways you could use a reverse mortgage to make your snow birding dream a reality.

The first option is to use your home equity to purchase a second home in the area you want to snowbird. For most people considering this option, it would be best if you could pay cash for your second home. The ability to pay cash for a second home will vary depending on your current home’s value, your age and the price of the second home.

One of the nice things about owning a second home is that you could turn it into a vacation rental while you are gone, or even rent it out through an online service, such as Air BnB. This could provide another source of income or help pay for tax, insurance and maintenance of your second home.

If you decide that buying a second home makes sense, you need to remember that you are limited to the amount of cash you can receive upfront through a reverse mortgage. If waiting is not an option, and you cannot get enough cash from the reverse mortgage, you more than likely will need to get financing for your second home, and then you could pay it off once the rest of the funds are available to you, assuming you stay within your cash budget.

Another benefit to owning two homes is that, should the loan balance exceed the value of the home you received a reverse mortgage on, your heirs can still inherit another home that is owned free and clear. This, of course, is assuming you pay cash for the second home.

Finally, you may decide that your second home should become your principal home. At that point you could sell your principal home and net any equity. Should you decide to do so, you could then get a reverse mortgage on the new home to free up that equity as well.

The second option would be to rent a home, condo or apartment for the 3 to 4 months of the year you are going to be wintering in another state.

This could be a great choice if you want to experience living in different cities, states or even countries. You may want to just put your toe in the water to see if being a snowbird is the right choice for you. Depending on your health, you may only be able to do this for a few years.

Obviously, there are some drawbacks to each of these scenarios.

In the first option, you are potentially using up all the equity in your home to purchase the second home, and you may need that equity for other reasons at some time in the future. You are taking on a whole new set of expenses including taxes, insurance, HOA dues and maintenance. And with the second option, depending on the costs and number of years you snowbird, you could use up all of the available equity.

Using the proceeds from a reverse mortgage to pursue your snow birding desires needs some serious thought and planning behind it. I highly recommend working with your financial advisor and CPA to see how this decision could impact you.


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