How to Finance Your Fractional Ownership Vacation Home
Buyers are often curious about how to finance the purchase of a fractional share of a vacation home. Fractional ownership is a relatively new concept and many traditional lenders are not aware of it. What are the financing options for a fractional purchase?
There are four primary options for financing your fractional ownership vacation home. The first, obviously, is cash -– buy your fractional share outright. This is the simplest method, and also probably the least likely. Not everyone has $100K - $400K (or more) in liquid funds.
The second option is to tap the equity in your home. Obtain a home equity line of credit (HELOC) and use the money to fund the purchase of your vacation home fractional share. This method has several advantages. HELOCs are easier to get than are mortgages; and the interest you pay is tax deductible as mortgage interest on your primary residence. Of course, you may not have enough equity in your home to completely fund the purchase of your vacation home.
Option three is to obtain a mortgage. There are several lenders who offer specialized mortgage products to fund the purchase of fractional ownership properties. Unfortunately the largest and most prominent company offering these products has just withdrawn their fractional lending products as a result of recent upheavals in the credit markets.
According to the Helium Report (March 26, 2008), a newsletter reporting news in the fractional vacation home industry, First Fractional Funding pulled out of the mortgage business after its lending partner, the National Bank of Kansas City stopped providing the loans.
Several other companies continue to offer specialized fractional mortgage products. NextStar Funding, Vacation Finance, and Sterling (MI) Bank and Trust remain viable players in the fractional lending market. With the tightening of credit in the wake of the subprime mortgage industry meltdown, borrowers can expect more scrutiny of their loan applications. Mortgage rates are likely to run 1.25% to 1.5% more than traditional mortgage products.
The fourth option for funding your fractional ownership vacation home is financing offered by the developer of the fractional project. A small number of fractional vacation homes do make available a self-financed option. Typically there is a down payment in the neighborhood of 20% of the purchase price, and the loan is amortized over a relatively short term (5 years), sometimes with a balloon payment at the end of that time.
With owner financing you can provide the down payment in cash or by tapping the equity in your primary residence. This method has the advantage of simplicity and ease, allowing you to complete your purchase quickly and with minimal scrutiny and paperwork.
These materials are furnished to provide general information. The presentation is for discussion purposes only, and does not constitute an offer to sell. An offer to sell a fractional interest will only be made with documentation specifically indicating that it is an offer to sell. |
Home | Emerald Coast | Fractional Ownership
Legal Disclaimer | Site Map | Technical Resources
www.AbacoRose.com
These technical resources made this site possible. Click here for more information.
|
