Mortgage rates may be at historic lows, but it’s now much tougher to get a mortgage than it was during the boom. And if you’re buying a seasonal vacation home, you might not be able to get a traditional mortgage at all.
So this post from Inman News outlines some alternatives for financing vacation properties or second homes.
Reverse mortgages are only available to folks over 62 years of age, and it essentially means that you sell your home now, getting a monthly, tax-free income, but don’t have to leave it until you can no longer live in it. You’re essentially willing it to the buyer.
You can also tap into your retirement account funds to purchase a second home, though there are many a rule and restriction. Here’s a strange one: “For example, you cannot buy a second home with an IRA and use it partly for personal use, even though you might rent it to unrelated persons the rest of the year.” That’s right, you can’t actually enjoy the use of your own country house until you retire: financing for those well-schooled in delayed gratification.
Looks a lot like a regular real estate transaction, except that the IRS lets you categorize it as an exchange and not a sale, so you don’t have to pay the capital gains tax. Here’s the skinny: “An exchange occurs when you trade real property that is other than your home or second residence for other “like kind” real property that you have held for trade, business or investment purposes. The like-kind definition is very broad. You can dispose of and acquire any interest in real property other than a home or a second residence. For example, you can trade raw land for income property, a rental house for a multiplex, or a rental house for a retail property.”