The legendary shared appreciation mortgage (SAM) has been around for decades. It was an attempt to trade off the mortgage rate for a share of appreciation in the home. Instead of an 18% mortgage rate, the borrower only pays, say, 10% on their mortgage, but promises to give up 50% of the gain on the home upon sale (or a predetermined date). The SAM concept was also used in the UK where elderly households received cash in exchange for a percentage of their home price. It wasn’t very popular after UK home prices skyrocketed.
As you can see, a London England property purchased in 1997 would a 50% share would generate quite the payoff for the lender.
Since FHA insurance is available for 3%, the Shared Downpayment Mortgage will be used in JUMBO markets like San Francisco where borrowers may have problems accumulating 20% down for a million dollar home. The is where Unison comes in.
Unison will split the downpayment and take 35% of the housing gain.
Of course, there are always asterisks!!!!
1. The examples presented in the table above are intended only to demonstrate the basic operation of the Unison HomeBuyer Agreement. Many other transaction structures and outcomes are possible. Unison is not a lender and Unison HomeBuyer is not a loan program. Any loan terms reflected herein are for illustrative purposes only. Loan rates and terms available from participating lenders may differ.
2. At closing you will pay all transaction costs, including third party fees (such as credit and appraisal reports, and title and escrow fees), any lender origination fees, and Unison processing and transaction fees. This will increase the amount of cash you need to contribute to the purchase transaction at closing.
3. When you sell your home you will be responsible for repaying any outstanding balance on your mortgage in full from your portion of the sales proceeds. The Unison HomeBuyer Agreement has no impact on this – you would have to pay these expenses whether you have a Unison HomeBuyer Agreement or not. The example assumes a 30-year loan, 4% interest rate, and ten year holding period. Ten years of monthly loan payments brings the loan balance down by approximately $170,000 from $800,000 to $630,000.
4. When you sell your home you will also be responsible for paying all selling costs, including brokerage commissions, which can typically amount to 6-9% of the sale price, from your portion of the sales proceeds. Selling costs are not shown in the example. The Unison HomeBuyer Agreement has no impact on this – you would have to do this whether you have a Unison HomeBuyer Agreement or not. If the sales proceeds are not sufficient to pay the mortgage balance, whatever amount is due to Unison, and the selling costs, you will be required to make up any shortfall. For example, assuming selling costs of 7.5% and a sale price of $1,200,000, your selling costs would be $90,000. If your Unison HomeBuyer Agreement is settled other than by sale of your home, such costs will not apply.
So, it is not a true risk sharing agreement.
To paraphrase Tony Bennett, you may leave your savings in San Francisco if home prices continue to rise. But you did get someone to chip in 50% of your down payment. So do your homework!