Financing Options For Your Fractional Ownership Vacation Home By David Yarian At Isnare.com Ezine Articles

Purchasers are often curious about how to finance the acquisition of a fractional share of a luxury vacation property. Fractional ownership is a new concept and many conventional mortgage brokers are not aware of it. Consequently you as the buyer may run into problems when you approach a traditional lender for financing on your luxury fractional vacation home. What are the options for financing a fractional property purchase?

There are four primary possibilities for financing your fractional ownership vacation property. The buyer should choose the option that suits their circumstances best. The first, and most straightforward, is cash -– purchase your ownership share by paying for it in full. This is the simplest approach, and maybe the most out of reach. Not everyone has $100K - $400K (or more) in liquid funds.

The second alternative is to utilize the equity in your primary residence. Approach your bank and get a home equity line of credit (HELOC) and utilize the proceeds to fund the purchase of your vacation residence fractional share. This approach has many advantages. HELOCs are less trouble to obtain than mortgages; and the interest on the home equity loan counts as a tax deduction as mortgage interest on your primary residence. Of course, you may not have sufficient equity in your primary residence to fully fund the acquisition of your vacation property.

Option three is to get a specialized mortgage, one that is designed for fractional ownership properties. There are several companies who market specialized loan products to fund the acquisition of fractional ownership vacation homes. Unfortunately the largest and most prominent company providing these financial products has recently withdrawn their fractional lending products because of the current turmoil and upheaval in the credit markets.

As reported by the Helium Report (March 26, 2008), a regular newsletter reporting news in the fractional vacation residence industry, First Fractional Funding withdrew from the mortgage business after its lending partner, the National Bank of Kansas City stopped underwriting the mortgages.

Several other lenders are continuing to underwrite specialized fractional mortgage products. NextStar Funding, Vacation Finance, and Sterling (MI) Bank and Trust remain providers in the fractional lending market. However, with the tightening of credit after the subprime mortgage industry meltdown, borrowers should expect a closer look at their loan applications. Fractional 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 residence is a loan product offered by the developer of the fractional project. Some fractional vacation residences do make available a self-financed alternative. Generally 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.

If you are able to obtain owner financing you can provide the down payment in cash or by tapping the equity in your home. This approach has the benefit of simplicity and ease, and you may complete your purchase quickly and with minimal scrutiny and paperwork. Owner financing can be the best solution if it is available.

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