Shared Equity: New Home Buyers Seeking Outside Investors For Down Payment Assistance

Tara Siegel Bernard reported earlier this month at The New York Times Online that, “For aspiring homeowners, coming up with a healthy down payment has long been the biggest obstacle to owning a home.

“With property values soaring in many areas — median prices in San Jose, Calif., and Denver are 60 percent above their prerecession peaks — the barrier is rising. That has some firms promoting unconventional ways to scrape together a down payment, including crowdfunding and using Airbnb rental income.

“Now, a small but growing number of home buyers are trying something different: asking an outside investor to put down money alongside them.”

The Times article explained, “It is called shared equity, and Unison, a company based in San Francisco, is the largest of a handful of firms putting it to work. Unison will provide at least half of a consumer’s down payment in exchange for a piece of any appreciation in the home’s value when it is sold. If the home sells at a loss, the company absorbs a share of that, too.”

This month’s article added, “Until the home sells, Unison is mostly a silent partner. The homeowner pays taxes, insurance and all other necessary costs.

“The idea behind the program is to provide home buyers with more options. It can help those who are short on down payment funds increase their buying power, though it may also work for people who simply do not want to sink every last dime into their homes. But whether it is right for any individual buyer — upfront cash now versus less proceeds later — is a difficult and highly personal calculation.

“Most first-time home buyers put down only about 7.4 percent, on average, according to Inside Mortgage Finance. Although there are plenty of programs that permit small down payments, they can substantially increase monthly housing costs.

“Unison and its competitors help increase a down payment to 20 percent of a home’s purchase price — the magic number needed to qualify for the best interest rates and to avoid the added cost of private mortgage insurance.”

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