Unison Equity Investment Program in Limited Pilot with Freddie Mac
Would you be willing to give up future home value appreciation, in return for help with your down payment today? Unison, a San Francisco-based company, offers home buyers exactly that.
Here is the concept, as explained on Unison’s website, abridged:
“The Unison Homebuyer program will match your 10% cash investment (down payment) with another 10%, getting you to a 20% down payment. You only need a mortgage for 80% of the home’s price. And there is no PMI premium to pay.”
“The money from Unison is an equity investment, so there’s no interest or monthly payments on that amount. Instead, you share with Unison part of the change in value of your home, up or down, when you eventually sell, up to 30 years later.”
Sounds enticing, doesn’t it? The idea of being able to make a 20% down payment, avoid PMI, and keep your monthly mortgage payment lower is attractive, especially in high-priced markets. Best of all, it isn’t technically a loan. There is no interest accrual on the down payment match you receive, and there are no extra payments to make.
This deal does not come cheaply, however. While it isn’t technically a loan, Unison expects to fully recover their investment – being the down payment funds they gave you – plus 35% of your home appreciation when you sell.
On a Jumbo mortgage, they take 43.75% of your home appreciation. Remember, they are also getting back every cent they gave you to begin with, plus these handsome sums.
Here’s how Unison explains the math, in one of their own examples from the FAQ page:
“Let’s assume you buy a home for $500,000. You borrow 80 percent, or $400,000, from a mortgage lender, and you and we each invest $50,000 towards the down payment. In exchange for providing 50 percent of the 20 percent down payment, we will receive 35 percent of the home’s change in value as our investment return.”
“If you sell the home in the future for $600,000, there is an increase in value of $100,000. Our return will equal 35 percent of that $100,000 increase, or $35,000. Our payment when you sell will equal $85,000, which is our original investment of $50,000 plus our return on investment of $35,000.”
Looking at the math another way, if your $500,000 home is worth $600,000 when you sell it, that’s a $100,000 profit. But Unison, by their own math above, is taking $85,000 of it, leaving you with only $15,000 in profit.
In short, Unison is banking on your future home value being juicy enough to give them a nice, fat return – out of a home sale profit that would normally be 100% yours.
Unison allows you to keep any equity that you earned from paying down your mortgage principal balance.
A word of caution: in order for Unison to recover their investment and obtain any financial return on it, the house must be sold at some future point. That point can be 30 years into the future. Otherwise, a homeowner can choose to “keep their home” and “buy them out” after 3 years. This latter option may not be feasible for buyers who needed down payment help to begin with.
While sounding good at first glance, Unison’s “equity investment” program may be best suited to home buyers who are financially sophisticated, and who are familiar with the concept of buying on leverage, and who plan to be in their home for many years.
Unison’s program is available through select lenders in the states of California, Oregon, Washington, Maryland and DC. Mortgage loans originated in tandem with Unison’s down payment match are salable to Freddie Mac under a limited pilot offering.
This does not mean that Freddie Mac has endorsed the concept; it’s more accurate to say that they’re trying it on for size very cautiously.
Our own review of Unison’s website leaves us concerned on another major point: they are looking for real estate professionals to help spread the word, and, for lack of a better way to phrase it, steer home buyers towards the program.
If the program is truly in the buyer’s best interest, then we would be among the first to cheer it. However, without seeing their contract in detail, it’s hard to say whether this is a good solution to boost a down payment, or, if it’s a speculative product that could leave participants virtually broke at the closing table in years hence.
Keeping home buyers informed and protected is what an Exclusive Buyer Agent is all about! When you have questions about home buying, turn to your local EBA for guidance you can trust. Find an Exclusive Buyer Agent in your area today!