Financing

The lowdown on paying for a home.

Getting down payment help now. Sharing home’s gain (or loss) later.

Source: Tara Siegel Bernard of the New York Times

Getting down payment help now. Sharing home’s gain (or loss) later.

Throughout the US there are countless people who would love to buy a home, but continue to pay that rent check to their landlord every month instead. Why is this?

For the average aspiring homeowner, the largest obstacle to overcome is the down payment. Several companies, including San Francisco-based Unison, have found an opportunity in this challenge: shared equity.

Shared equity allows homeowners to split their down payment with an investor in exchange for a piece of the appreciation when the home sells.

How shared equity benefits homeowners:

  • Increase buying power
  • Retain some of your savings and buy a home
  • Avoid costly private mortgage insurance and high interest rates

The average loan to value (the percentage borrowed to purchase a home) for a first-time homeowner is 92.6%. Homebuyers who borrow more than 80% of a home’s value upfront are seen as risky by lenders. Traditionally, they overcome this with unfavorable interest rates and mortgage insurance. Shared equity allows for buyers to afford a large enough downpayment to avoid these costs.

The downside? By sharing equity with a firm like Unison, a home buyer saves upfront but ends up giving up a cut of their proceeds from sale if their home has increased in value.

Regardless of whether you are the type to give up some of your equity to allow an outside investor to alleviate some of the capital-intensiveness of home buying, shared equity is catching on. Unison invested alongside 450 homebuyers last year, and they project to invest with roughly 2,500-3,000 more people in 2018.

Check out the full article to dig deeper into the mechanics of shared equity.

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