Finance Your Fractional Ownership Vacation Home

Purchasers are often curious to learn about how to finance the acquisition of a fractional share of a luxury vacation property. Fractional ownership is a relatively new model and many traditional lenders are not well-informed about it. What are the options for financing a fractional property purchase?There are four main options for how to finance your fractional ownership vacation property. The first, obviously, is cash -– buy your fractional share by paying for it in full. This is the simplest method, and also probably the most out of reach. Many people don't have immediate access to $100K - $400K (or more) in liquid funds.The second alternative is to use the equity in your primary residence. Obtain a home equity line of credit (HELOC) and make use of the proceeds to pay for your vacation home fractional share. This approach has many advantages. HELOCs are less trouble to get than mortgages; and the interest on the home equity loan is tax deductible as mortgage interest on your primary residence. Of course, you may not have enough equity in your primary residence to fully cover the acquisition of your vacation property.Option three is to obtain mortgage funding. There are a number of lenders who provide specialized loan products to fund the acquisition of fractional ownership properties. Unfortunately the largest and most prominent company offering these financial products has just withdrawn their fractional lending products because of recent challenges in the credit markets.According to the Helium Report (March 26, 2008), a newsletter covering developments in the fractional vacation home industry, First Fractional Funding left the mortgage business after its lending partner, the National Bank of Kansas City stopped providing the mortgages.A few other companies are continuing to underwrite specialized fractional mortgage products. NextStar Funding, Vacation Finance, and Sterling (MI) Bank and Trust are still providers in the fractional lending market. With the tightening of credit after the subprime lending industry meltdown, purchasers may expect more scrutiny of their loan applications. Fractional mortgage rates can easily run 1.25% to 1.5% more than traditional mortgage products.The fourth option to fund your fractional ownership vacation home is a loan product offered by the developer of your fractional vacation home. Some fractional vacation homes do provide a self-financed option. 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 period.If you are able to get owner financing you can provide the down payment in cash or by tapping the equity in your home. This method has the benefit of simplicity and ease, and you may complete the transaction quickly and with minimal scrutiny and paperwork.