Unison Offers “Co-Investing” Approach

Written by Ashley Sutphin Posted On Wednesday, 24 November 2021 00:00

Unison is a startup that promises co-investing as a way of utilizing your home’s equity or getting down payment assistance.

Traditionally, when you want to buy a home, or when you already own one, you have limited options for down payment assistance or capturing home equity unless you want to take out a new loan.

Unison is a new approach that offers equity capture and down payment assistance through something called shared appreciation.

How Does It Work?

The idea of co-investing with Unison means that the company gives you cash as down payment assistance or equity withdrawal. Then, in exchange for that upfront cash, Unison gets a portion of your property’s future change in value.

It’s not a loan—instead, it’s an option investment. As a result, you don’t pay interest or monthly payments.

If you sell your property in 30 years, for example, you would repay the initial investment from Unison as well as any shared appreciation. You can also opt to buy Unison out.

Unison doesn’t share the equity built when you pay your mortgage. Instead, it’s part of the appreciation or depreciation of the home’s purchase price to the sales price or the eventual appraised value after 30 years.

If your property value goes down or stays the same, Unison takes a loss just like you do.

Otherwise, if you buy a home for a certain price and then sell it for, let’s say $250,000 more, then Unison would take a percentage share of the appreciation.

Down Payment Assistance

When you get a traditional mortgage, you usually have to pay 20% down. You can sometimes buy a home with a 5-10% down payment, but you’ll have a higher mortgage payment, and you’re also probably going to have to pay private mortgage insurance.

Unison has a program to increase a down payment by offering 5% to 15% down payment assistance. They get to share in the future appreciation of the property.

As far as the number for the equity share, it depends and changes from deal to deal.

A good overall estimate is that you might share a third of the change in value for 10% assistance on a down payment. If you got a 15% down payment from Unison, you might share nearly 50% of the future price change of the home.

You do have to meet some requirements for down payment assistance from Unison.

You need to have at least 5% to put down and a credit score of 620 or higher. You also have to use the home as your primary residence and work with one of Unison’s lenders. The property you plan to buy needs to have a purchase price of $100,000 to $3 million.

Homeowners with Equity

If you’re already a homeowner, Unison could be useful for you as well. When you have equity, it means your property is worth more than your mortgage or any debt you owe on it. You can leverage your equity by taking out cash against the value of your property. Then, you can use that money to fund a new investment or improve your home, among other things.

You would, in a traditional model take out a loan to capture your home’s equity, but Unison offers an alternative.

You can get up to $500,000 or 17.5% of your property’s equity through Unison in exchange for a share of future property appreciation or depreciation.

To qualify for the Homeowner Equity program, you need to have a debt-to-income ratio of 50% or less and have at least 20% equity in your home. You should also have a credit score of 680 or higher and use your home as a primary residence.

The maximum Unison will invest in a home is $500,000.

Are There Downsides?

Of course, as with anything, there is some fine print to be aware of with Unison. First, there is a 2.5% origination fee for down payment assistance. There’s also a 3.9% transaction fee from your cash proceeds when you close using the equity program.

If you plan to own your home for less than three to five years, Unison participates only in appreciation. The same is true of the Homeowner Equity program if you sell your property in five years or less.

You need a Special Termination if you want to buy out the investment portion of Unison, and it’s not an option if you don’t hold your home as long as the program timeline requires it.

Unison also expects that you maintain your home reasonably well over time because the company will only make money if your property goes up in value.

It’s an interesting concept, and while it wouldn’t work for everyone, it does offer opportunities for some outside of traditional down payment assistance programs and home equity loans.

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