Prospective buyers are often curious how to finance the purchase of a partial share of a luxury holiday home. Fractional ownership is a new concept, and many traditional mortgage brokers are not aware of this. What are the financing options for a partial home purchase?
There are four main opportunities to finance your home for leisure. First, just cash - buy your share of the property, paying for it in full. This is the easiest way, and also probably the least likely. Not everyone has $ 100K - $ 400K (or perhaps more) in liquidity.
The second option is to use capital in your home. Take out your own equity line of credit (HELOC) and use the proceeds from the purchase of a partial share in a holiday home. This practice has several advantages. HELOCs are easier to get than mortgages; and the interest you pay is not taxable as a mortgage interest in your home. Of course, you may not have enough capital in your home to fully fund the purchase of your holiday home.
The third option is to get mortgage financing. There are a number of companies that provide specialized mortgage products to finance the acquisition of leisure homes. Unfortunately, the leading company offering these financial products recently recalled its fractional mortgage products as a result of recent difficulties in the credit markets.
According to the Helium report (March 26, 2008), a periodical magazine devoted to events in the fractional leisure industry, First Fractional Funding left the mortgage business after its loan partner, the National Bank of Kansas stopped the underwriting of mortgage loans.
Several other companies continue to provide specialized fractional mortgage products. NextStar Funding, Vacation Finance and Sterling (MI) Bank and Trust currently remain suppliers in the equity lending market. With the tightening of lending due to the crisis in the field of subprime lending, buyers should expect a closer examination of their loan applications. Fractional rates on mortgage loans can grow by 1.25% to 1.5% compared with mortgage products.
The fourth option for financing your home ownership is financing offered by the developer of your fractional residence. Some fractional cabins provide access to a self-financing option. As a rule, the down payment is about 20% of the total cost, and the loan is depreciated over a relatively short period (5 years), often with a balloon paid at the end of that time.
When financing the owners, you can bring an advance payment in cash or by using capital in your main place of residence. The advantage of this method is simplicity and simplicity, which allows you to complete a transaction in a short time and with less control and paperwork.
