Can I Get A Mortgage for a Timeshare?

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Can I Get A Mortgage for a Timeshare?
Article Excerpt

A timeshare lets you use a vacation home for a week out of the year. What’s the best way to finance one? Learn more about timeshares and how they work.

Vacation homes are a way to escape for the weekend or take longer breaks away from the grind of day-to-day life. You might need financing to buy one, which means that you would have to make payments on that loan in addition to the mortgage on your primary home. You would have to pay other expenses like property taxes, insurance, and utilities.

You could try to make some money by renting your vacation home on a service like Airbnb, but that would mean that you couldn’t necessarily use it when you want. Another option to consider is a timeshare. This would allow you to use a vacation home at certain times. Timeshare ownership is different from other types of real estate. As a result, your financing options are also different

Read on to learn more about how timeshares work and how you might be able to finance one.

What is a timeshare?

A timeshare is an arrangement that gives you the right to use a vacation property for a specified period of time on a regular basis. A common arrangement is one week once a year. Other people have the right to use the property at other times.

Timeshares are often created by a developer that has decided to sell units as timeshares instead of as individual houses or condos. You can find timeshares almost anywhere people go on vacation, such as beaches, ski resorts, or locations close to Disneyland.

You may be able to trade time with someone else. Suppose, for example, that you have access to a vacation home near a ski slope in July. That doesn’t help you if you want to go skiing. Now suppose another owner’s week will be in December, but they would rather go hiking. The two of you can agree in advance to trade weeks.

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Can I get a mortgage for a timeshare?

Traditional mortgage financing is not available for a timeshare. The type of ownership that timeshares provide does not meet the guidelines set by Fannie Mae and Freddie Mac, nor does it meet the requirements for the FHA, VA, or USDA mortgage loan programs.

» READ MORE: Which Loan Programs Allow Investment and Second-Home Purchases?

How can I finance a timeshare?

Many timeshare developers will offer financing. This might seem like the easiest route, but it could mean higher interest rates. This type of financing would not be available if you are buying a timeshare on a resale market. With a little advance planning, you could have other options.

Seller Financing

Many timeshare purchases occur after a presentation by a developer. They will provide all of the paperwork, and they might offer a financing deal with only a small portion of the purchase price down. According to ARDA, interest rates for timeshare seller financing can be as high as 20% over 10 years. If you plan ahead, you may be able to find a better deal.

Home Equity Loan

You may be able to use the equity in your home to purchase a timeshare. One advantage is that the interest on a home equity loan used to buy a timeshare could be tax-deductible. The major disadvantage is that a home equity loan uses your home as collateral. If you default on the loan, the lender might come after your primary home, not the timeshare.

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Personal Loan

A personal loan could be a good option for financing a timeshare. The interest rate might be higher than a home equity loan, but it’s likely to be lower than seller financing would be.

Vacation Loan

Some lenders offer personal loans for the specific purpose of funding a vacation or other travel. They tend to advertise these as loans for once-in-a-lifetime trips, which are the kind of trips that tend to be quite expensive. Purchasing a timeshare could fit the purpose of a vacation loan, since it means that you are committing to ongoing vacations.

How much do timeshares cost?

When you buy a timeshare, you pay a purchase price, and then you are obligated to pay annual dues. Your interest in the timeshare is known as a “timeshare interval.” The American Resort Development Association (ARDA) states that the average price of a weekly timeshare interval in the U.S. is $24,140!

All of the timeshare owners share the costs of maintaining the property. The annual dues are similar to fees paid to a homeowners association for maintenance of common areas.

You can also buy a timeshare from an existing timeshare owner in a resale market. Timeshares rarely appreciate in value, so buying a resale tends to be less expensive than buying directly from a developer.

What are the types of timeshares?

Timeshares can vary in terms of how your access to the property is determined and in the type of ownership interest you have.

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Access to Timeshares (Intervals)

A timeshare guarantees you access to a vacation property at a specific time. There are two main ways to determine when you and other owners may use the property:

  • Fixed weeks: In a fixed-week timeshare, you may use the property during the same time period every year. This offers consistency and predictability — you’ll always know when you need to request time off from work. It can be a problem, though, if your week is not at an optimum time of year, such as if you get access to a beach house at the height of hurricane season.
  • Floating weeks: A floating-week timeshare lets the owners claim different weeks each year. This often works on a first-come-first-served basis, so the competition can get brutal.

Timeshare Ownership

When you own a timeshare, you might own an interest in the actual property, but that is not the only type of arrangement that is possible.

  • Shared deed: Each timeshare owner owns a portion of the property itself. If a timeshare has weekly intervals, you would own a 1/52 interest. This is a real estate interest that you hold for life, as long as you keep up with your annual dues. You can also sell it to others or pass it on to your heirs.
  • Shared lease: The developer owns that timeshare and leases it to each timeshare owner. This is not an interest in real estate, but rather a contract that gives you the right to use real estate. It could be subject to termination by the developer.

Want to use a 30-year mortgage for a timeshare?

Although 30-year financing for a timeshare likely isn’t possible, investment properties and vacation homes are! You may be able to replicate something like a “timeshare” by renting the property. The mortgage professionals at The Wood Group of Fairway are ready to answer your questions and present your best loan options. Get your free pre-approval started today by answering a few questions!