How Shared Appreciation Mortgages Help With Down Payment

What if you could get a loan to help make your down payment on a home and not have to pay anything back until you sell the home? That’s what several finance companies have started offering. The catch: The lender shares in the profit from any increased value of your home when it’s sold.

How it typically works: The finance companies that offer these shared appreciation mortgages (SAMs) include OWN Home Finance…Patch Home…and Unison Homeowner. Unison, by far the largest player, matches your down payment (typically 10% of the total cost of the home that you are buying). You pay an up-front transaction fee of 2.5% of the amount loaned. When you sell the home, you must pay back the initial loan amount plus a percentage—35% for a total down payment of 20%—of any price appreciation of your home since the loan was made. If the home’s value stays the same from the time you buy it to the time you sell it, you simply pay back Unison’s initial loan amount. If the home loses value, you pay back the loan amount minus 35% (or the percentage agreed upon) of the decrease in value.

My take: SAMs can be attractive if you expect your home to have very little or no appreciation in value—in that case, a SAM gives you a loan at no additional cost beyond the initial 2.5% fee. On the other hand, if your home appreciates even at the average growth rate of home prices since 1980—about 6.3% a year—a SAM could result in the equivalent of taking out a loan with a double-digit interest rate.

Other important factors to consider…

What if you don’t plan to sell? Thirty years after the loan is made, even if you still live in the home, you must repay the initial loan along with the agreed-upon share of any price ­appreciation.

What if you make capital investments in your home that boost its eventual selling price such as remodeling or adding a pool? In that case, you apply for a remodeling adjustment when you are selling your home (or at the 30-year mark). The appraisal at the time of sale (rather than how much you actually spent on the improvements) also determines the value of your improvements.

What if you want out of the deal? Some SAMs allow you to buy out the finance company after three years by paying back the loan plus the originally agreed-upon share of any increase in home value.