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This Unison HomeOwner review details a new option for accessing your home’s equity. We’ll discuss how the Unison HomeOwner plan works, the pros and cons of the program, and whether or not it’s a good fit for you. Enjoy!
Do you want to access your home equity? How’d you like to do it without taking out another loan?
A new program from Unison can help. It’s called Unison HomeOwner, and it allows you to tap into your home’s equity without acquiring another monthly payment.
Sound interesting? Let’s take a look.
Who Is Unison?
Founded in 2004, Unison is a relatively new company based in the San Francisco area. They have made over $300 million dollars in residential real estate investments and are funded mainly through institutional investments like university endowments and pension funds. Funding from Unison is currently available in 30 states and the District of Columbia.
Now, if you’ve ever lived in the Bay Area, you know how expensive housing prices are there. Unison was created as a new way to help buyers afford the homes they want and assist current homeowners access their equity without acquiring more debt.
With two separate funding programs, Unison caters to both homeowners and home buyers. Prospective buyers can receive up to 50% of their down payment. Although this piece focuses on the homeowner side of things, you can learn more about funding your down payment and avoiding P.M.I. by reading our complete Unison HomeBuyer review.
Unison at a Glance
- Founded in 2004
- San Francisco area company
- Over $300 million invested to date
- Funding available for homeowners and buyers
- Available in 30 states and Washington, D.C.
How Does Unison HomeOwner Work?
Unison HomeOwner seeks to provide a new way for homeowners to access their equity without acquiring new debt. Unlike traditional home equity loans or HELOCs, working with Unison means you won’t have a monthly bill to pay. You’ll also avoid those pesky interest payments.
Through the Unison HomeOwner program, you can access up to 20% of your home equity and receive a cash payment right away. Use that money to fund home remodeling projects, pay off debt, or do anything else you’d like. You’re free to use the money for up to 30 years or until you sell the house, whichever comes first.
In exchange, Unison claims a percentage of the increase in your home’s value when you sell. From what I can gather, this is equal to 4 times the amount you fund. You’ll also be charged a 2.5% transaction fee upon receiving the funding.
Essentially, Unison is making an equity investment in your home. By providing your home equity funding, they invest in your home with you. If the value of the home goes up, they share in the increase. Should your home lose value, they make less money as well…although their return will never be less than the amount they funded.
Unison HomeOwner Availability
The Unison HomeOwner program provides current homeowners an opportunity to tap into their home equity in exchange for a share of the home’s increase in value upon its sale. As of March 2019, the program is available to residents of 30 states and the District of Columbia, including:
- New Jersey
- New Mexico
- New York
- North Carolina
- South Carolina
- District of Columbia / Washington D.C.
Unison HomeOwner: Inside the Numbers
As I’ve already mentioned, Unison provides access to your home’s equity in exchange for a share in your home’s change in value upon its sale. According to their homepage, you can fund up to 20% of your home’s value through this program. Additionally, you are not allowed to dip below an 80% loan to value ratio, which is fairly standard practice for accessing your home equity.
Now for the hard numbers. From what I’ve found, Unison’s share is equal to 4 times the amount you fund, based on the percentage of equity you pull from the house. So, if you tap 10% of your homes equity, Unison claims a 40% stake on the increase of your home’s value from that point forward.
That probably seems like a huge number, and it is.
With that said, there are some exceptions. If you use the money to fund a remodeling project, for instance, you can file what they call a “Remodeling Adjustment.” This allows you to retain 100% of the increase in value that is directly attributed to the remodel. This helps make the program more palatable, but that is still a huge chunk of money.
While you don’t have to make interest payments, trading a share of your home’s equity going forward could potentially cost you more than interest payments would have. It is extremely important that you run all of the numbers and carefully consider all of your options before moving forward with any type of home equity funding.
Advantages of Unison HomeOwner
Why choose Unison HomeOwner to access your home’s current equity? Here are a few of the most important benefits of going with Unison.
#1) It’s Not a Loan
Unlike home equity loans or HELOCs from a bank, funding through Unison does not come in the form of a loan. That means there are no monthly payments and you won’t pay interest. For somebody who despises debt, that seems like a pretty good thing.
On the other hand, you are exchanging a percentage of your home’s future value for securing the funds. Be sure that this makes financial sense before proceeding.
#2) You Have Flexible Options
One of the best things about Unison HomeOwner is that you can use the money for anything you want. That means you can use your home’s equity to remodel your house, pay off credit card debt, pay for college, or anything else you can dream up.
With that said, I always caution against using funding methods to supplement overspending. Don’t do it. As with any funding source, it’s super important that you don’t use this money to dig yourself an even bigger hole.
#3) Provides a Unique Way to Access Equity
Unison HomeOwner is unique in that it allows you to access your home equity without taking on more debt. As somebody who loathes debt, this certainly speaks to me. Of course, you’ll also be giving up a large chunk of equity moving forward, so there is that…
Unison HomeOwner Review: Other Benefits
- Buyout is Available – After three years, you have the option of buying out Unison’s claim to your equity. This is definitely something to consider if conditions are right.
- 30-Year Limit – With Unison HomeOwner, you have access to the funds provided for a whopping thirty years or until you sell the house, whichever comes sooner.
- You Own Your House – Although Unison retains a claim on the percentage of your home value’s growth, they are essentially a silent partner. The house is yours to do with as you please, provided you don’t let it fall into disrepair.
Disadvantages of Unison HomeOwner
Although Unison does provide a unique way to tap into your home equity, there are certainly some major issues to consider.
First and foremost, in exchange for the funding, you are giving up a substantial amount of equity in the growth of your home’s value. Now, if you want to bet against your home rising in value, that’s one thing. However, the growth in value could easily outpace the amount you would have paid in interest through a traditional HELOC or home equity loan. If that’s the case, you’re almost certainly losing money.
Additionally, you’ll need to pay a 2.5% transaction fee upon receiving the funding. That’s not unusual, but it could cost you quite a bit, depending on the amount you fund. You may also be required to pay for third-party fees as well.
Finally, you’ll need to keep good records of any remodeling projects you choose to do. By filing a Remodeling Adjustment, you can save a significant portion of your home’s appreciated value if the project directly adds to an increase in value of your home. You should also keep in mind that “value” is considered the fair market value as determined by an appraisal and is not based on the amount of money you spent.
Alternatives to Unison HomeOwner
Before making any financing decision, it’s always important to explore all of your options. While certain products are a great fit for some, they may not be the right move for you. Carefully consider the numbers before pulling the trigger.
Although Unison HomeOwner is unique in its approach, a more traditional approach could be more beneficial for your situation. Here are a few options to consider:
Home Equity Loan – This is a type of loan in which you receive a lump sum that is borrowed against the fair market value of your home. To repay the loan, you are required to make monthly payments, including interest fees, over a certain period of time.
Home Equity Line of Credit (HELOC) – This is an open line of “secured” credit which uses your home’s equity as collateral. Like with a credit card, you’ll have a credit limit. You’ll also be required to make monthly payments, including interest, on any balance you carry.
Cash-Out Refinance – With a cash-out refinance, you are refinancing a mortgage that you currently have into a larger loan. You then receive the difference between the two loans in cash. You’ll owe more on your home, but you’ll leave with cash in hand.
Who Might Consider Unison HomeOwner?
- Those needing money now who aren’t concerned about long-term gain. – If you need access to your home’s equity now and have no concern for long-term gains, Unison HomeOwner may be a good fit.
- Those betting their home value will decrease. – If you need cash and think your property value will decrease, this may be a good option. Of course, Unison has to believe that your home value will rise. You’ll also need to keep your home in good condition or Unison can claim more money based on a “Deferred Maintenance Adjustment.”
Unison HomeOwner Review: Final Thoughts
To be perfectly honest, I believe that tapping into your home’s equity – in any form – is rarely a good move. Why in the world would you want to pay back that money more than once? That’s my opinion and I’m sticking to it.
With that said, I know people are still going to do it. Unison HomeOwner provides another avenue.
If you need access to your home’s equity, need it quickly, and don’t care about forfeiting a percentage of your long-term gains, this could be for you. Likewise, Unison HomeOwner is a good option if you want to bet against a future increase in your home’s value.
Whatever you do, don’t pull the equity out of your home to supplement your overspending habits. You’ll simply find yourself further behind than you were before.
If you’ve run the numbers and feel like it works out in your favor, you can get prequalified with Unison HomeOwner here.
Thanks so much for reading my Unison HomeOwner review! Good luck and be sure to do your due diligence.
What do you think of Unison HomeBuyer? Let us know in the comments below!
Get Cash for Your Home Equity – No Monthly Payments Required with Unison HomeOwner [Review]
Nationwide, many homeowners have been paying down their mortgages and have built up significant equity in their homes.
At the same time, home prices have been rising.
Naturally, some people may be looking for ways to tap into the equity in their home.
The traditional way of tapping into home equity is to obtain a home equity loan or HELOC through a bank or a lender. You are charged an interest rate, have to pay assorted closing costs and must commit to making monthly payments – in addition to your regular mortgage payments.
However, in this new exploding FinTech landscape, innovative ways to tap into your home’s equity are popping up. And some of them are quite promising.
You may remember my review of Silicon Valley-based Unison. What Unison offers is cash in exchange for being an investment partner in your home. They charge a small upfront fee, but you make no monthly payments to them.
Instead, they share a portion of the future change in value when you sell your home. If your home appreciates, Unison shares the gain. If your home loses value, they usually share the loss as well.
The terms vary depending on the amount invested and on the program you use.
The company has two main programs: Unison HomeBuyer for home buyers and Unison HomeOwner for – you guessed it – homeowners.
What is Unison HomeOwner?
For those who already own your own home and have equity you want to tap into, the HomeOwner program allows you to do that without getting a loan and without monthly payments.
If you are unsure how much home equity you have, it’s fairly simple to find out:
just take the estimated current value of your home and subtract the amount of your existing mortgage balance(s). The remaining amount is how much equity you have in your home.
According to the brochure on their website, Unison can provide homeowners with up to 17.5% of the value of their home.
In exchange for unlocking this cash from your home equity, the company shares a portion of any future change in your home’s value.
For example, when Unison gives a homeowner 10% of the value of their home, they typically receive 40% of any future change in the value of the home. They also usually share in any loss in value.
Advantages of the Unison HomeOwner Program
Now that you have some context on the Unison HomeOwner program and how it works, here are some of the advantages to using the program.
1. Avoid upfront costs.
A traditional home equity loan through a lender will come with closing costs, lender, and attorney fees…not to mention having another (secondary) mortgage payment and the interest charges on it. Avoiding all of these upfront costs can be a huge savings opportunity while still allowing you to pull some equity out of your home.
If the only other way to access the money you have tied up in your property is to sell it (along with the associated selling costs and agent fees), you are potentially saving money by not having to pay those fees, either.
2. No monthly payments.
We all know how important a few hundred dollars per month can be in accomplishing our financial goals. Having more flexibility and less debt in your monthly budget can allow you to get ahead and stay on track with your financial plans.
3. It’s flexible.
The money you pull out doesn’t have to be used for anything in particular.
You as the homeowner get complete discretion over how to use the funds. Thus, you could use the money to pay off debt, make home improvements, invest in the stock market, or pay for your child’s education.
However, it’s important to keep in mind that you shouldn’t use it as a temporary crutch to inflate your spending habits.
4. You have up to 30 years to use the money.
The Unison HomeOwner program lasts up to 30 years. This means that if you stay in the home, you don’t need to pay back Unison’s investment until three decades later, which doesn’t sound too bad.
Disadvantages of the Unison HomeOwner Program
1. You’ll need to keep track of any remodels.
To ensure that the value of any remodels is fairly allocated to the homeowner, Unison requires that you apply for a Remodeling Adjustment, which involves an appraisal from a third party at the time you sell your home.
You are also required to take lots of “before” photos so the appraiser will know what the property looked like before you remodeled it.
While this process seems fair, it is an additional hassle you’ll have to go through if you make any major home improvements.
2. You have to share any appreciation in your home’s value.
If your home value increases after you take an investment from Unison, they’ll share the gains with you. They could theoretically gain a lot from your home’s appreciation. So much so, that the “costs” greatly outweigh other options, like a HELOC. So you should be okay with that outcome before deciding to use the program.
With that said, price appreciation is not always a sure thing, and it’s hard to know if your home will appreciate or not. And if your home loses value, Unison typically shares in the loss, which reduces your loss.
These are just some things consumers should think about before signing on the dotted line. The marketing collateral makes the program sound like a great opportunity – but it does have certain costs you need to seriously consider before saying “Yes.”
How does Unison make money?
Just to recap in case you didn’t read my previous Unison HomeBuyer review in depth, Unison makes money by investing alongside you in your home. They also charge a transaction fee of 3.9% of the amount invested.
For example, if you receive $50,000 through Unison, the initial fee you’d pay Unison would be $1,950. Based on closing cost rates in your area, this could replicate “closing costs”.
For Unison, this helps cover operational costs of processing your application and investment while they take the risk on your home appreciating over time.
While the Unison HomeOwner program can last up to 30 years, I am sure they are counting on most households not staying in their homes for 30 years. The average homeowner moves every 5-7 years, which would mean Unison’s capital is tied up for a shorter than expected period.
They also are able to invest in many different homes at once, across many different cities, which allows them to be diversified.
Only primary residences are eligible. The general consensus is that rental properties are not as well maintained as personal residences. According to the Unison website, if you want to rent out your property you must buy out their investment first.
You can buy Unison out. There is a feature called “Special Termination” (the same occurs with the HomeBuyer program) that allows you to buy Unison out after the 3rd year anniversary of the loan.
After the 3rd year, an appraiser would re-appraise your home. The difference in value from the original purchase price and the appraised value would determine how much Unison shares in the home’s appreciation.
You are responsible for keeping up with repairs and maintenance. You own the home completely, so you still have the responsibility of keeping up with repairs and maintenance. Unison will not share in any losses that are attributed to damage beyond normal wear and tear.
Of course, when considering different programs, it’s smart to keep an open mind and research all your options before making a decision. What works for someone else may not work for you. Here are some solutions that might also make sense in your situation.
Traditional home equity loan with a lender. Of course, the traditional home equity route where you go through a lender and get a loan with monthly payments (basically a second mortgage) is still a viable option. This is likely still what the majority of consumers are doing. Check out Figure if you are interested in this type solution.
With a traditional home equity loan, there are more upfront fees as well as interest fees spread over the life of the loan. However, when you go to sell your house, any potential gains don’t have to be shared with a third party.
Competitors. There are a few other companies that offer similar programs, where they invest in your home in exchange for a stake in the potential upside.
Identifying the differences (if there are any) between these companies and what they offer is beyond the scope of this article, but that shouldn’t preclude you from conducting your own research to find out which solution might work best for you.
Who is Unison HomeOwner for?
For the diligent saver who is making progress toward a financial goal, an interest-free way to tap into home equity could help them reach their goals sooner. Since Unison places no limitations on what the money can be used for, it could potentially be used to pay off debt or other loans, or to establish an emergency fund, or to make diversified investments in other areas.
Just keep in mind that you are potentially exchanging more money long-term (if your house appreciates in value significantly) for an immediate influx of cash.
In my opinion, Unison HomeOwner is not for the individual who sees “free money” and decides to use it to fund their dream lifestyle.
Thus, if you have no immediate need for cash and have no need for tapping your home equity, you may come out ahead if you don’t use a program like Unison HomeOwner.
Learn more at Unison.com.
What are your thoughts? What do you think of the Unison HomeOwner program?
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Unison Review: Better Than a HELOC?
Thinking about leveraging your home equity for extra cash?
You no longer have to borrow against it with a home equity loan or line of credit (HELOC) and make regular payments to a lender.
Thanks to home equity sharing companies, you can access cash using your home equity without adding a monthly payment.
One of these companies is Unison, and in this review we’ll go over how it works and how it stacks up against the competition.
Unison Basics: How it Works
Unison gives you money today in exchange for a share of your home’s future value. In other words, they invest in your home hoping it will go up in value.
This is not a home equity loan, a HELOC, or any other debt product; you don’t have to make monthly payments, and there are no interest charges.
Instead, you pay back the company’s investment (plus their share of your home’s appreciation) when the term expires or when you sell your home. You can also buy out part or all of the company’s stake in your home after five years.
Unison Costs and Fees
When you sell your home or your term ends, you’ll owe Unison its original investment plus its share of your home’s appreciation.
To best explain how this works, there are some definitions we need to cover that are specific to Unison.
- Original Appraised Value:the amount your home is worth today.
- Original Agreed Value:your appraised value at the start of the agreement minus a 2.5% risk adjustment fee (which we’ll discuss later in the article).
- Ending Agreed Value:the value that’s agreed upon at the end of your Unison contract.
- Co-Investment: the amount of cash you receive from Unison.
- Investor Percentage: the portion of your home’s appreciated value you’ll pay back to Unison.
Now, let’s look at an example.
Say that an appraisal finds your home to be worth $500,000, and you’re looking for a co-investment with Unison of $50,000.
|Original Appraised Value:||$500,000|
|Percentage of your home’s value you receive upfront:||10%|
In this example, you get $50,000 in cash from Unison. There are no payments and no interest charges on this $50,000.
At the start of the agreement, you also know your Original Agreed Value (OAV).
Original Agreed Value = Appraised Value – 2.5%
This OAV doesn’t impact the amount you get from Unison upfront, but it will determine how much you pay them back. (More on this below.)
You also know your Investor Percentage upfront, which is the portion of your home’s appreciated value you’ll owe Unison at the end of your agreement.
This varies based on your agreement, and can be anywhere from 20% to 70%.
Unison states that in the majority of agreements, the Investor Percentage will likely be 40%. So that’s the figure we’ll use in our example.
So to sum up what we know at the beginning of the agreement:
|Original Appraised Value:||$500,000|
|Percentage of your home’s value you receive upfront:||10%|
|Original Agreed Vale (OAV):||$487,500|
Let’s move on to the end of the agreement.
Imagine you sell your home 10 years later without any change in value.
What you’ll owe Unison is 40% of the appreciated value of your home, based on your OAV.
|Original Appraised Value:||$500,000|
|Ending Agreed Value:||$500,000|
|Original Agreed Vale:||$487,500|
|Amount you owe Unison (40% of appreciation + original stake):||$62,500|
Note that Unison charges a 3% transaction fee — deducted from your initial proceeds — upon closing the deal. If you move forward with Unison, you’re also responsible for third-party fees, such as appraisals.
You may owe Unison less than what you originally borrowed if your home depreciates, given a long enough timeframe and enough depreciation.
However, note that if you buy Unison out early or sell your home within five years of closing on the deal, Unison will not share any losses on the home.
Otherwise, you may pay back less than what Unison gave you.
Going back to the previous example, imagine you own your home for six years before selling. When you sell, your home’s value has dropped to $450,000.
Keeping in mind that the Risk Adjusted Value of your home was $487,500, Unison’s share of the depreciation would be -$15,000 (40% of -$37,500). Subtract this from Unison’s $50,000 initial investment to arrive at $35,000 — the amount you’d owe Unison.
|Original Appraised Value:||$500,000|
|Cash received from Unison:||$50,000|
|Risk-Adjusted Value (2.5%):||$487,500|
|Future home value (after six years):||$450,000|
|Appreciation based on Risk-Adjusted Value:||-$37,500|
|40% of appreciation:||-$15,000|
|Amount you owe Unison (40% of appreciation + original stake):||$35,000|
Of course, failure to maintain the property would lead to a significant decrease in value. Unison accounts for this possibility, which we’ll cover in a moment.
But first, let’s look at what happens when your home appreciates in value. Say that at the end of six years, you find your home is worth $600,000.
|Original Appraised Value:||$500,000|
|Cash received from Unison:||$50,000|
|Risk-Adjusted Value (2.5%):||$487,500|
|Future home value (after six years):||$600,000|
|Appreciation based on Risk-Adjusted Value:||$112,500|
|40% of appreciation:||$45,000|
|Amount you owe Unison (40% of appreciation + original stake):||$95,000|
If you don’t properly maintain the home, Unison will not share in property value loss.
Unison protects itself against this eventuality by applying a Deferred Maintenance Adjustment when calculating final proceeds. This adjustment reduces the loss Unison shares with you, thus increasing the amount you owe.
Unison uses one or more appraisals and repair estimates from third-party providers to determine how much property value loss was due to improper upkeep.
If you and Unison can’t agree on an amount in good faith, they move things to arbitration.
Unison offers a Remodeling Adjustment to exempt appreciation attributable to remodeling from the final settlement calculation.
You must hire licensed contractors and document the project to qualify for the Remodeling Adjustment. Unison then hires a third-party appraiser to determine your home’s new value and calculate how much increase is due to renovations.
For example, if you remodel your home, increasing its value by $75,000, that $75,000 is then removed from your final appraisal.
This policy allows you to use your proceeds for renovations and boost your home’s value without owing more.
Application and Eligibility
Unison doesn’t have a minimum home value requirement. However, they do require that your mid-FICO credit score (i.e., the middle of your three FICO scores) be at least 650.
Unison’s maximum loan-to-value ratio is 75% with an excellent credit score. A strong score can also help you maximize approval chances and terms despite a low debt-to-income ratio.
At the time of writing, Unison is available in more states than its competitors:
- New Jersey
- New Mexico
- New York
- North Carolina
- Rhode Island
- South Carolina
- District of Columbia / Washington D.C.
How Much You Can Get
Unison lets you borrow up to 17.5% of your home’s value, with a maximum dollar figure of $500,000. That’s the highest dollar figure of any of the big home equity sharing companies, but the percentage is actually lower.
Consequently, Unison looks to be a good choice for those with more valuable homes.
Of course, exact amounts depend on your property value, equity in the property, credit score and DTI ratio.
To determine your home’s value, Unison hires a third-party appraiser. This is the Appraised Value. From there, Unison subtracts the 2.5% risk adjustment from your Appraised Value to arrive at the Original Agreed Value.
Unison considers your home’s value to be the Original Agreed Value for purposes of calculating your proceeds.
Unison Pros and Cons
Here are some benefits and drawbacks to working with Unison.
- 30-year terms.Unison’s 30-year term gives you ample time to recoup Unison’s investment and pay it back on time. It’s longer than Hometap’s and Noah’s 10-year terms.
- Maximum cash amount.Unison’s $500,000 maximum cash amount is much higher than its competitors’ maximums.
- Risk adjustment. Unison uses a 2.5% risk adjustment, which lowers the final amount you receive and increases your cost. Still, it’s much lower than the risk adjustment of its competitor Point, which can be as high as 25%.
- Percentage of home value obtainable.Unison may let you borrow up to $500,000, but the actual amount you can get is capped at 17.5% of your home’s value — a lower percentage than its competitors.
- Credit score.Unison’s 650 credit score minimum may exclude interested borrowers whose credit may already be too low for traditional home lending options.
Unison Competitors and Alternatives
Unison’s three primary competitors are Hometap, Noah and Point. Now that we’ve covered Unison in-depth, let’s compare it against these companies. You can also learn more in our roundup of the best home equity sharing companies.
- Hometap. Unlike Unison and the other competitors, Hometap takes a share of your home’s appraised value at the end of the term or when you sell, instead of the original investment plus appreciation. Hometap requires a 600 credit score and offers 10-year terms and a max loan-to-value ratio of 75%. You can take out up to 30% of your home’s value for a max dollar figure of $300,000. Hometap applies no risk adjustment.
- Noah. Noah’s term length is only 10 years, and it requires a minimum property value of $300,000. You can obtain up to $350,000 (less than Unison’s $500,000), but Noah lets you borrow up to 20% of your home’s value, compared to Unison’s 17.5%. Noah’s maximum loan-to-value requirement is 85%.
- Point. Like Unison, Point offers 30-year terms. Servicing fees range from 3% to 5%. Point will hand out up to $350,000, depending on your equity and home value. Point’s 20% to 25% risk adjustment is much larger than Unison’s 2.5%.
Key Questions About Unison
Unison does invest in vacation homes in some cases. They ask that you plug in your address to see if the property qualifies. However, they do not invest in rental properties unless they’re owner-occupied. To qualify as owner-occupied, you must live in your home for 180 days in a 365-day period without being away from your home for more than 60 consecutive days.
Unison will extend “Protective Advances” to you, which are funds they provide to keep you current on your mortgage payments.
You can pay back these advances whenever you’d like over your term. However, these advances are due back to Unison along with your regular amount owed when you sell the home or when your term ends. Unison also charges interest on advances until they are repaid.
Unison can also offer an “Orderly Sale,” which prevents your home from being “distressed,” protecting your credit and your home’s value.
Our Take: Is Unison a Good Deal?
Is Unison right for you?
Our stance is that home equity sharing companies are ideal for those who can’t obtain a traditional home equity loan or HELOC. With interest rates being low, and these loans having a fixed-rate, traditional lending methods are best suited for those who qualify.
Home equity share agreements make sense for those who have a large amount of equity in their home, and would benefit substantially from the cash they’d receive today. For example, many people turn to home equity sharing companies to pay off substantial credit card debt or to keep their home out of foreclosure.
Unison in particular is a decent option for homeowners in expensive real estate markets, as well as for those whose property values are high, given its low maximum percentage paired with its high maximum dollar amount.
It’s also suitable if you’re looking to renovate your home. Unlike some competitors, Unison will exempt any appreciation that results from renovations.
Regardless, it’s best to compare each home equity sharing company against each other, as well as home equity sharing as a whole against traditional home lending.
We’ve written reviews on Unison’s three competitors — Hometap, Point and Noah — so check those articles out to see where they stand.
What Is a Shared Appreciation Mortgage?
A shared appreciation mortgage, or SAM, is an investment that an investor, known as a Shared Appreciation Company, makes with a homeowner to share in the risk and reward of a home’s appreciation or depreciation. The investment amount is a portion of the equity the homeowner has when they apply. The homeowner can use the cash for anything they want. It is not a loan, so there are no monthly payments to be made or interest accumulating. The investor makes their return on their investment in your home when you sell the home, or when the term ends, wherein an appraisal is done to determine the home’s value at that time. Typically, SAMs have a term length of 10 to 30 years.
The homeowner does need to keep up with their regular mortgage payments, as well as taxes and insurance. While the investor never has occupancy rights to the home, the homeowner does contractually agree to maintain the home during the life of the term agreement.
Who Should Get a Shared Appreciation Mortgage?
Shared appreciation mortgages can be useful for people who own a single-family home, condo, or townhome as their primary residence, who want to pull cash out of their equity but can't afford to incur more debt on their credit report or take on the additional monthly payments a home equity loan or HELOC would bring. Often, banks make it very difficult, if not prohibitive, for those who are self-employed, or real estate investors, to qualify for a home equity loan or HELOC. SAM companies are more lenient in these circumstances, so they offer a viable option.
The homeowner’s credit score can be as low as 600 in many cases because the SAM company looks at the full financial situation, the borrower’s income, their repayment plans, and whether the home is in a historically appreciating neighborhood.
If the home has appreciated at the time of sale or end of term, the homeowner keeps the majority of the increase. The investor takes back the cash amount they advanced to the homeowner at the beginning of the term, plus the agreed-upon fractional share (often 15% to 30%) of the appreciation as their investment return.
If the home value remains the same at the end of the contract, the SAM company gets back what they advanced the homeowner at the beginning of the term. In other words, they break even.
If the home depreciates, the SAM company’s return will be lower than their original investment. How much lower will be decided by the contractual equity share the parties agreed to at the beginning of the term.
What Does a Shared Appreciation Mortgage Typically Cost?
Shared appreciation mortgages are a lump sum payment to the homeowner, with a balloon payment due upon term settlement. At the beginning of the contract, the SAM company charges origination fees of 2% to 5% of the investment sum. The investor also discounts the appraised value of the home, typically by 10% to 20%.
For example, a home appraised for $400,000 could be discounted 15% by the investor, making the property worth $340,000 according to the agreement. You’ll also pay for the appraisal, escrow and title fees, and recording of the lien. In the end, the SAM gives you a lump sum equivalent to 10% to 20% of your home’s equity, but receives a 15% to 30% share of ownership.
In sum, this is not a loan but rather an investment. The investment carries risk for both the homeowner and the shared appreciation mortgage company. Even SAM companies will tell you that the terms are in their favor because they are helping people who don’t have the option for prime loans from traditional lenders.
How We Chose the Best Shared Appreciation Mortgage Companies
We reviewed nine investment companies to find four that specialize in shared appreciation mortgages. To determine each company’s strengths and where they could help you best, we evaluated how much they were willing to invest, what LTV ratio they would accept, what fees they passed on to the homeowner, and the ownership share range for which they typically contracted. We also looked at how they evaluated the homeowner’s qualifications, their credit score allowances, and the ease of applying online. Finally, we reviewed term lengths, prepayment penalty clauses, and the company’s reputations.
Home reviews unison equity
Comparing Unison to traditional programs
There are traditional programs that let homeowners capture their equity or receive down payment assistance, but how do they compare to Unison?
How Unison compares to a HELOC
A homeowner can take out a home equity line of credit, or HELOC, when they have equity in their property. Typically, HELOCs are available to homeowners who have good credit (620 or higher) and a debt-to-income ratio of 43% or less. A HELOC charges interest over a short period, such as five, 10, or 20 years.
While it can be a fixed-rate loan, home equity lines of credit are have variable rates, which means payments increase over time and interest rates are higher than a standard first mortgage. A HELOC's major drawback is that the owner is responsible for an additional payment, potentially giving them two mortgage payments to keep up with. The major benefit to a HELOC is that the balance of the loan is paid down each month, meaning there's no lump sum due. Let’s compare a HELOC to Unison's HomeOwners Program to see which is a better option.
Let’s say you own a home worth $400,00 and you want to pull out $50,000 from your home’s equity. You can get a HELOC at a 6.1% introductory rate for 60 months that adjusts 0.25% every 12 months and is capped at a 9% interest rate. Over the 10 years, your monthly payment would range from $557.62 to $567.99.
You're still responsible for maintaining the home, paying taxes, and any other mortgage payments in addition to your monthly HELOC payment. In total, you would pay $17,366 in interest for a total of $67,366 paid to the bank. At the end of the 10 years, you owe nothing to the bank and can enjoy any appreciation or equity you've built into your home.
Now, let’s say you went with Unison’s HomeOwners Program and received $50,000 in cash, which is equal to 13% of your property’s value. In exchange, you agree to share 50% of any appreciation made on top of your $400,000 home value at the time of the transaction.
If the home appreciates at a conservative 2% per year (currently, the national average home appreciation is around 3.6% per year), your property would be worth around $480,000 at the end of 10 years. If you sold at this time, you would owe Unison $40,000 in addition to their initial investment, totaling $90,000. That’s far more than the $17,366 in interest you'd pay to the bank with a HELOC.
However, if your property value drops to $380,000 after 10 years, you'd only pay Unison $40,000. The shared loss of $10,000 each is deducted from the $50,000 loaned to you.
In this scenario, Unison’s program prevails only if your property decreases in value, stays the same, or the you simply cannot afford an additional $557 monthly payment.
How Unison compares to a reverse mortgage
A reverse mortgage is a loan available only to people age 62 or older who have equity in their home. (It’s challenging to compare reverse mortgages to Unison because of the age qualification.)
Homeowners can receive the equity as a lump sum, a fixed monthly payment, or a line of credit where the homeowner draws from the loan as needed. Reverse mortgages require no payments over the life of the loan, but the entire balance with interest becomes due when the homeowner dies or sells the property. Interest rates vary for reverse mortgages and can be fixed or variable. Reverse mortgages can become very costly if the homeowner lives for a long time, as the interest accrues over that period.
As with a HELOC, if the property continues to appreciate even at a slow pace, the homeowner could pay substantially more with Unison than they would with a reverse mortgage.
However, Unison’s program is available to anyone regardless of age, and if the property value stays the same or depreciates, there's no additional payment needed. If you're looking for a lump sum from the equity in your home without payments, Unison’s program is one of the better options.
How Unison compares to down payment assistance programs
There are many down payment assistance programs available to homebuyers; especially first-time buyers. They vary in terms and the amount available. Some place the down payment assistance as a subordinate, second-lien-position loan that's due when the home is sold, while others have no repayment and the down payment assistance disappears after a set number of years.
Most of the programs are conditional and require the homebuyer to meet certain income thresholds or hold a specific job, like a teacher, firefighter, or police officer. This greatly limits who can take advantage of these programs, making Unison one of the only down payment assistance programs available on a large scale.
If you're considering using Unison for the down payment assistance program, be aware of what it will cost over time, especially if the property appreciates. Also keep in mind that, while there are no payments, it's wise to set money aside for repaying Unison.
In most circumstances, if you're trying to eliminate a PMI payment and lower your monthly payment, it’s best to save until you have enough for a 20% down payment plus closing costs.
Using Unison’s HomeOwner Program to buy an investment property
Let’s see if Unison’s program would make sense if you used the cash from your property’s equity to buy another investment.
We'll use the same example scenario as above, where you use Unison's HomeOwner Program to get a loan for $50,000 and agree to split the appreciation on your primary home 50-50. Your home is currently worth $400,000, and it will be assessed again at the end of the 30-year loan.
You used the $50,000 as a down payment on a rental property, getting a $200,000 30-year fixed-rate mortgage.
The new investment property produces a positive net cash flow of $400 per month after expenses and paying the mortgage, which is a 9.6% cash-on-cash return on investment.
Assume that your primary residence appreciates at 1% per year. After 30 years, it would be worth $520,000. Based on the original equity split of 50%, you would have to share $60,000 of the property's $120,000 appreciation with Unison in addition to repaying the $50,000 originally withdrawn from the equity of your primary residence.
At this point, the 30-year mortgage on the investment property you purchased is paid off. But you now owe $110,000 to Unison. We'll say your investment property has also appreciated by 1% every year, so you can now sell it for $325,000 to pay off Unison.
You would walk away with roughly $195,000 before taxes. And you've received $400 per month for the past 30 years without putting any of your own money into the investment.
Unison’s program may be a viable option when used to invest in property, but doing so means you're putting the future equity of your personal residence on the line.
Unison in summary
In almost every scenario, Unison will cost more than alternative programs if the property appreciates.
However, it may be a suitable choice for homebuyers that would like to lower their monthly payment by using additional down payment funds to get their foot in the door to homeownership and are willing to pay more for it on the backend.
It also makes sense for homeowners who don't believe their home will appreciate greatly over time and are willing to share the appreciation for the benefit of having a lower monthly payment now or to use the funds to create an additional income stream.
Unison’s alternative lending model and unique program offer attractive benefits for homeowners and homebuyers, but have disadvantages, too. As with any lending program, read the fine print and understand how the program would affect you before committing.
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Unison Home Equity Loans Review
ConsumersAdvocate.org Rating: 4.7 / 5 (Excellent)
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Unison is a San Francisco-based company that is committed to helping homeowners finance their life needs without adding debt. Unison is not a lender and does not offer loans. Instead, Unison co-invests in your primary residence by giving you a portion of your equity in cash in exchange for a shared portion of the property's future change in value - up or down. Most importantly, there are zero payments or interest, and no minimum income or age requirements. Unison has excellent reputation and financial strength, as evidenced by hundreds of customer testimonials, several awards, and a 4.5-star, A+ rating by the BBB, among others. The company was founded in 2004 and is based in San Francisco and is available in 30 states plus Washington DC.