Unison is a company that contributes funds towards a purchase in exchange for a percentage of a property’s appreciation.
Again – Unison only takes a share of a property’s appreciation, and not a share of the “total equity” like many people mistakenly believe.
This type of down payment assistance is excellent for:
- Buyers with tight debt ratios who want to qualify for a higher purchase price (there are no payments associated with Unison contributions);
- Buyers who are very tight on cash and need a larger down payment in general; and
- Buyers who do not want to liquidate their investments for tax reasons or b/c the market is down.
Below is a repeat of my 2017 blog where I explain Unison in more detail.
Unison contributes 10% of the purchase price or more to help buyers increase purchasing power, to save cash for other uses, to avoid PMI, or to reduce payments in order to lower debt ratios or just save money.
Unison does not charge interest or any payments, but only takes a small percentage of the appreciation of a property when the property is re-sold or refinanced after three years.
A typical Unison transaction might look like this:
Price of Home: $ 500,000
Contribution from Buyers: $ 50,000
Contribution from Unison: $ 50,000
Loan Amount: $ 400,000 (80% Loan-to-Value).
With this scenario the buyer would owe Unison 35% of the appreciation in the home after 3 years. If the home depreciates, Unison absorbs 35% of that too.
If the home appreciates 3% per year, the home will be worth about $546,000 in three years. The buyers will owe Unison $50,000 (the original investment) plus 35% of the $46,000 of appreciation, or $16,100 (total owed to Unison will be $66,100).
This is a great upside for Unison (about a 10% annual return) but Unison can’t control the timing, so the firm is taking a large risk that a buyer could sell during a down market as well.
Keep in mind also that Unison allows borrowers to avoid PMI and payments on the $50,000 they would have had to borrow otherwise. This saves borrowers an additional $7,000 to $15,000 in payments over 3 years.
In any case, we think Unison is a great option for cash strapped borrowers looking for lower payments, no PMI or more buying power. Please contact us if you’d like more information.
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646