Consider a shared equity agreement if you want a flexible solution to tap into your home equity without racking up more debt. You could qualify even if you don’t have perfect credit, and you won’t have to worry about monthly payments.
Keep reading to learn more about how this arrangement works, the key benefits, and how shared equity agreements differ from other home equity products. You will also discover a highly-rated, trustworthy company to help you get started.
What Are Shared Equity Agreements?
Shared equity agreements offer a creative way to tap into your home equity. Instead of borrowing against the equity in your home, you can partner with an investor to get the cash you need. This amount is referred to as a co-investment.
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How Do Shared Equity Agreements Work?
Here’s a breakdown of how shared equity agreements work:
- A homeowner agrees to enter into a shared equity agreement. This means the investor will pay the homeowner a lump sum in exchange for a portion of the home’s future value.
- The property is appraised to determine its current value.
- The investor drafts up an agreement with the terms of the transaction for the homeowner to review.
- The homeowner signs the closing documents and receives the co-investment.
When the agreement ends, the homeowner must sell the property or buy out the investor. If the property value has increased, the investor will receive their share of the increase plus the amount of the original co-investment. But if the property value has decreased, the investor will share in the losses and get back less than the original co-investment amount.
Advantages of Accessing Home Equity Through Shared Equity Agreements
Shared equity agreements are viable for homeowners who’d prefer to unlock the equity in their homes without racking up more debt. They could also work if you’ve tried other home equity financing options, like home equity loans and HELOCs, but have had trouble getting approved.
Below are some key perks shared equity agreements have to offer:
- No monthly payments: This is arguably the most enticing benefit of shared equity agreements. You won’t have to worry about the monthly principal and interest payments, and the co-investment isn’t payable until the agreement ends. At that time, you can sell your home or buy out the contract.
- Less stringent qualification criteria: You could qualify with a middle FICO score as low as 620. However, some home equity financing products require you to have good or excellent credit.
- Streamlined application process: Most investors simplify the process to make it easy to move forward with a shared equity agreement.
- Investor shares in the gains and losses: If the home increases in value, both parties win. But if it decreases, in most cases, both the homeowner and the investor absorb the losses.
- Extended contract: Most shared equity agreements give the homeowner between 10 and 30 years to decide how to move forward.
- Sizable co-investment amounts: You could take out a substantial portion of your equity, which could easily amount to $500k.
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Key Differences Between Shared Equity Agreements and Other Products
Here’s how shared equity agreements differ from other home equity products.
Shared Equity Mortgage vs. Shared Equity Agreements
A shared equity mortgage refers to an arrangement where the lender and borrower both have ownership of the property. However, the amount of ownership depends on the equity contribution, which is used to determine how much each party gets when the property is sold. If a property sustains a loss, both parties also absorb their fair share.
By contrast, a shared equity agreement does not give the investor ownership rights during the life of the agreement. It’s an agreement that grants the investor a share in future profits or losses.
Home Equity Loans and HELOCs vs. Shared Equity Agreements
With a home equity loan or HELOC, you’ll have to pay back the lender in equal installments for the equity you take out of the home. But shared equity agreements do not call for payments during the contractual term. In fact, the investor won’t collect until the agreement ends. At that time, the homeowner will pay the investor an amount equal to the original co-investment plus a share of the change in the home’s value.
Shared Ownership vs. Shared Equity Agreements
Shared ownership is a term used for property owned jointly by friends and relatives. When the property is sold, the co-owners share in the profits (or losses) based on their ownership percentage (or amount of their original investment).
Examples of a Shared Equity Agreement
There are no limitations on how the funds received through a shared equity agreement can be used. Here are a few examples of how you can leverage the co-investment proceeds to make a big-ticket purchase or meet your financial goals.
Using a Shared Equity Agreement to Pay Off Debt
Convert your equity into cash and pay off your high-interest debt. Doing so could free up funds to spend elsewhere or improve the quality of your life.
Using a Shared Equity Agreement to Renovate Your Home
Some homeowners use the funds to make home improvements, which results in a higher property value. You could also earn more money when it’s time to sell your home.
How to Get Started with a Shared Equity Agreement
If you’d like to explore the opportunity of a co-investment through a shared equity agreement, consider Unison HomeOwner. It’s offered by Unison, an A+ rated entity with the Better Business Bureau (BBB) that’s been in business since 2004. You can possibly convert up to 17.5 percent of your home’s value into cash so you can live life on your own terms.
Unison requires a minimum 620 credit score and LTV not exceeding 75 percent. Debt-to-income (DTI) ratio requirements vary by homeowner. But a lower credit score likely means you’ll need a lower DTI and LTV. It’s also best if your property is an owner-occupied single-family home, condominium, or townhome. However, some second homes qualify for co-investments on a case-by-case basis.
Co-investment amounts range between $30,000 and $500,000, and you’re free to use the funds how you’d like. You’ll have 30 years to decide how you wish to move forward. There are two options – you can sell the home, and Unison will collect an amount equal to the original co-investment plus a share of any increase in value. Or you can stay in the house and pay Unison this amount. The choice is yours!
Get started today by visiting Unison’s website and filling out a brief online form to determine if you qualify. If pre-qualified, you can fill out a formal application or give Unison a call to take the next step.