What if you could save a 10% home down payment and get all the benefits of a 20% down payment? What if you could take out a home equity loan and not make a single payment for 30 years?
With traditional financing options, those things aren’t available. However, Unison, a home ownership investing company, can make those things a reality. But those great benefits come at a cost of the future appreciation in your home.
Is it worth it? Here’s what you need to know about Unison.
- Sell equity in your home for a downpayment
- If you already own a home, access the equity for student loans
- May be an expensive alternative to a traditional HELOC
How Unison HomeBuyer works
Unison is an investment company that lends you money in exchange for a share of future appreciation in your home. As a homebuyer, Unison will lend you up to 10% of the purchase price for a down payment. You’ll also put in an additional 10% of the value.
In exchange for an interest rate of 0% with a no-monthly-payment loan of 10% of the down payment, Unison will take 17.5% to 70.0% of the future appreciation. The most common exchange is 10% down for 35% of future appreciation.
By taking on a 10% loan from Unison, you’ll avoid paying for costly private mortgage insurance and you’ll lower your monthly loan payment. Of course, you must pay back Unison’s initial investment plus its share of the appreciation when you sell the house or after 30 years.
What would that look like? Say you buy a home for $250,000. As a buyer, you’ll put in $25,000 and Unison will lend you $25,000. In exchange for this loan, Unison gets to keep 35% of the appreciation. You’ll take out a mortgage for $200,000 to cover the remaining purchase.
After seven years, say you sell the home for $350,000 which is a $100,000 appreciation. At that point, you’ll pay Unison $25,000 in principal return plus 35% of $100,000, or $35,000. In total you would pay Unison $60,000.
You would use the remaining $290,000 to pay off your mortgage balance (which would be in the neighborhood of $175,000) and you can keep the remaining $115,000 for a down payment on your next house.
What Happens If My House Declines in Value?
As an investor, Unison shares in upside potential and downside risk. That means it will take 35% of losses as well as 35% of gains.
For example, say you bought a house for $250,000 (like in the first scenario) with $25,000 of your own money and $25,000 of Unison’s money. Instead of rising in value, say the house value fell to $200,000.
After seven years, say you sell the house for $200,000. You pay off your mortgage balance ($175,000), and you have $25,000 left over. Now you’d have to pay Unison its principal balance ($25,000) less its share in the loss. Its share in the loss would be 35% of $50,000, or $17,500. In total you’d pay Unison $7,500, meaning you’d walk away from the sale of the home with $17,500.
However, there are two important caveats to this scenario. First, if you sell within three years, Unison won’t share in your losses. Second, if you haven’t done proper maintenance on the house, Unison may change its proportional share of the losses. The details about maintenance will be in your contract.
How Unison HomeOwner Works
Unison HomeOwner works much the same way as Unison HomeBuyer, but with a few differences.
First, Unison HomeOwner will buy up to 20% of the equity in a home you already own. You can use the money from Unison’s loan for just about anything from paying for your kid’s college education, to improving your home, and more.
When you sell the house (or after 30 years), you pay back Unison’s principal investment and its share of the appreciation.
Can I Refinance My Main Mortgage?
When you have a loan with Unison, you can refinance your primary mortgage as long as you have at least 20% equity in your home. Since Unison has a second lien position on your loan, it requires you to leave a buffer to protect its share of the equity.
What Happens After 30 Years?
If you still live in your house after 30 years, you have to buy Unison out or sell your house and pay back the loan. You may be able to buy Unison out by taking out a HELOC, home equity loan, or even a reverse mortgage if you’re over age 62 by then.
It’s also possible to simply use cash to buy out Unison, though that may be difficult since the amount of equity in your home could be very substantial.
Where Is Unison Available?
Unison isn’t currently available in every state.
These are the places where it currently invests: Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Virginia, Washington, and Washington D.C.
Should I Let Unison Invest in My House?
Most Americans build up the vast majority of their wealth inside of their homes. That means that recommending any financial product that erodes home equity could leave the average person poorer.
That said, I think that allowing Unison to invest in your home makes sense in a few scenarios.
First, if you want to buy a home, and you have a 10% down payment, investing with Unison makes a lot of sense. By having a 20% down payment, you’ll avoid costly private mortgage insurance which can save you thousands of dollars per year (especially if you own a more expensive home).
Having a larger down payment will also lower your monthly mortgage payment, leaving you to invest more money outside of your primary residence. Sure, you’ll lose out on some of your appreciation, but this is essentially a low-risk loan with some immediate benefits.
The second scenario where I may recommend investing with Unison is if you want to tap into your home equity for an investment. For example, you may want to buy a rental property using Unison for homeowners and a mortgage from your primary bank.
It could also make sense to use Unison for homeowners if you need cash to buy inventory for your business or otherwise fund your start-up costs.