Borrowers can only put a 10-percent down payment and additional 10% down payment comes from the financial firm (Unison Home Ownership Investors) which qualifies the homeowners for a larger mortgage, eliminates mortgage insurance as 20 percent down payment programs do.
In return for half of a down payment, Unison Home Ownership Investors will receive part of the gain or loss of a home’s value when the home is sold in the future or refinanced either with the payout or loss. Borrowers do not pay any interest on a down payment contribution from Unison. This program is a shared equity program that federal mortgage agency approved.
Since this mortgage is a 20 percent down payment, there is no private mortgage insurance (PMI). Freddie Mac handles these loans to the same underwriting criteria as mortgages that use a 20-percent down payment.
Borrowers can buyout Investors’ stake in their property after several years, or they can keep the equity share for up to 30 years. At that point, they would have to buy out Unison by refinancing or selling. Buyout rate is 35 percent of the gain or loss in the property's value.
Let's say you are purchasing a home for $500,000 with 10 % down payment and qualified for a $450,000 mortgage. With this program, you would increase your buying power for another $50,000 or more since you just eliminated mortgage insurance, or you would get a $400,000 mortgage loan with lower payments that include PMI elimination as well. Your interest rate on the mortgage is also lower since there is no more add on for 90% loan to value.
Several lenders are offering this program. One of them is First Cal. This is a pilot program offered only by few lenders. What makes this program unique is that investor not only receives the equity gain but also is a partner for the same percentage of the loss in the event property values goes down.
If you are interested in this mortgage program, contact me for a list of lenders.