| Prospective buyers are often curious about how | | | | As reported by the Helium Report (March 26, |
| to finance the acquisition of a fractional share of a | | | | 2008), a periodical covering developments in the |
| luxury vacation home. Fractional ownership is a | | | | fractional vacation home industry, First Fractional |
| new concept and many traditional mortgage | | | | Funding left the mortgage business after its |
| brokers are not well-informed about it. What are | | | | lending partner, the National Bank of Kansas City |
| the financing options for a fractional home | | | | stopped underwriting the mortgages. |
| purchase? | | | | A few other companies still continue to provide |
| There are four principal possibilities for how to | | | | specialized fractional mortgage products. NextStar |
| finance your fractional ownership vacation home. | | | | Funding, Vacation Finance, and Sterling (MI) Bank |
| The first, simply, is cash -- buy your ownership | | | | and Trust currently remain providers in the |
| share by paying for it in full. This is the simplest | | | | fractional lending market. With the tightening of |
| method, and also probably the least likely. Not | | | | credit in the wake of the subprime lending |
| everybody has $100K - $400K (or perhaps more) | | | | industry meltdown, purchasers should expect |
| in liquid funds. | | | | more scrutiny of their loan applications. Fractional |
| The second alternative is to use the equity in | | | | mortgage rates may run 1.25% to 1.5% more |
| your home. Take out a home equity line of credit | | | | than residential mortgage products. |
| (HELOC) and use the proceeds to purchase your | | | | The fourth option for funding your fractional |
| vacation home fractional share. This practice has | | | | ownership vacation home is financing offered by |
| several benefits. HELOCs are simpler to get than | | | | the developer of your fractional residence. Some |
| mortgages; and the interest you pay is tax | | | | fractional vacation residences do make available a |
| deductible as mortgage interest on your home. Of | | | | self-financed option. Typically there is a down |
| course, you may not have an adequate amount | | | | payment in the neighborhood of 20% of the total |
| of equity in your home to totally fund the | | | | price, and the loan is amortized over a relatively |
| acquisition of your vacation home. | | | | short term (5 years), often with a balloon |
| Option three is to get mortgage funding. There | | | | payment at the end of that time. |
| are a number of companies who provide | | | | With owner financing you can come up with the |
| specialized mortgage products to finance the | | | | down payment in cash or by tapping the equity in |
| acquisition of fractional ownership vacation homes. | | | | your primary residence. This method has the |
| Unfortunately the leading company offering these | | | | advantage of simplicity and ease, allowing you to |
| financial products has recently withdrawn their | | | | complete the transaction in a short time and with |
| fractional mortgage products as a result of recent | | | | reduced scrutiny and paperwork. |
| difficulties in the credit markets. | | | | |