Prospective buyers are frequently curious about how to financially arrange for the acquisition of a fractional share of a luxury vacation property. Fractional ownership is a new concept and a lot of conventional bankers are not aware of it. What are the possibilities to finance a fractional property purchase?
There are four primary alternatives for financing your fractional ownership vacation property. The very first, and most straightforward, is cash -– buy your ownership share outright. This is the simplest approach, and maybe the least likely. Most men and women do not have 0K – 0K (or more) in liquid funds.
The second alternative is to utilize the equity in your primary residence. Get a residence equity line of credit (HELOC) and use the proceeds to fund the buy of your vacation property fractional share. This technique has numerous advantages. HELOCs are simpler to get than mortgages; and the interest on the 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 totally fund the acquisition of your vacation property.
Alternative three is to find mortgage funding. There are a number of financial institutions who market specialized loan products to finance the acquisition of fractional ownership properties. Unfortunately the leading organization providing these mortgage products has just withdrawn their fractional mortgage products as a result of recent challenges in the residential lending business.
According to the Helium Report (March 26, 2008), a periodical covering news in the fractional vacation property industry, First Fractional Funding left the mortgage business after its financial partner, the National Bank of Kansas City stopped underwriting the mortgages.
A number of other companies will continue to underwrite specialized fractional mortgage loans. NextStar Funding, Vacation Finance, and Sterling (MI) Bank and Trust remain viable players in the fractional lending arena. As credit tightens after the subprime lending industry meltdown, purchasers might expect a closer look at their loan applications. Fractional mortgage rates are likely to run 1.25% to 1.5% a lot more than conventional mortgage products.
The fourth choice to finance your fractional ownership vacation property is financing offered by the developer of the fractional project. A couple of fractional vacation residences do make available a self-financed alternative. Normally there is a down payment in the neighborhood of 20% of the total price, and the loan is amortized over a fairly short term (5 years), sometimes with a balloon payment at the end of that period.
If you are able to get owner financing you can make the down payment in cash or by utilizing the equity in your primary residence. This method has the benefit of simplicity and ease, allowing you to complete your buy in a short time and with minimal scrutiny and paperwork.
