- What if you could take out a home equity loan
and not make a single payment for 30 years?
With traditional financing options, that's not possible.
However, Unison, a home ownership investing company
can make that scenario a reality.
But the extra flexibility
comes at a cost of the future appreciation in your home.
Is it worth it?
That's what we're gonna discuss today.
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Hey everyone,
this is Andy with The College Investor,
investing in personal finance for millennials.
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Thanks. Okay, what is Unison?
Well Unison is an investment company that lends you money
in exchange for a share of future appreciation in your home.
They'll make a co-investment in your property
up to 17.5% of its current value
with a minimum investment of $30,000
and a maximum of $500,000.
In exchange, Unison will take
a cut of your home's future appreciation.
Typically, the exchange
is four times the investment percentage.
So for example,
if Unison invested 5% of your home's original agreed value,
it would receive 20% of its future value.
The most it could receive is 70%,
since the max investment it will make
is 17.5% of your home's value,
because when you multiply 17.5% time four, you get 70%.
But Unison doesn't get its cut until you sell your home,
or until 30 years have elapsed.
Until then you don't have to pay a penny.
So let's do a detailed example
to make it easier to understand.
Say you own your home that's worth $250,000.
You receive a 10% investment from Unison of $25,000.
And Unison gets to keep 40% of the appreciation.
After seven years, you sell your home for $350,000,
which is a $100,000 appreciation.
At that point, you pay Unison $25,000 in principal return,
plus 40% of the $100,000 or $40,000.
In total, you would pay Unison $65,000.
The remaining $35,000 of appreciation profit
is yours to keep.
All of the equity you built up
through your mortgage payments is yours to keep as well.
So for example,
if you have paid your mortgage down by $30,000,
you'd walk away from the sale with a total of $65,000
in your pocket.
That's $35,000 from appreciation
and $30,000 from the equity you built
by paying down your mortgage.
"But what happens if my house declines in value?"
You might ask.
Well, as an investor,
Unison shares in the potential upside
and the downside of risk.
That means it will take the same percentage of losses
due to depreciation,
as it takes for profits due to value growth.
Again, let's say you have a house that's worth $250,000,
and you take $25,000 of Unison's money
in exchange for a 40% share of your home's future value.
But instead of rising, the house value falls to $200,000
in this example.
After seven years, say you sell the house for $200,000.
You pay off your mortgage balance of $175,000,
and you have 25 grand leftover.
Now you have to pay Unison
its principal balance of 25 grand
less its share in the loss.
Its share in the loss would be 40% of $50,000 or $20,000.
In total you'd pay Unison $5,000,
meaning you walk away from the sale of the home
with 20 grand.
Perhaps you're thinking,
"This may be an easier way to buy a house as well."
Well, Unison has built a program for home buyers too,
but the program is currently not accepting new applications
at this time.
If and when the pause on applications is lifted,
Unison HomeBuyer provides down payment assistance.
As a home buyer,
Unison will lend up to 10% of the purchase price
for a down payment.
You'll also need to put
an additional 10% of the value yourself.
Using Unison could help home buyers avoid PMI,
which is awesome.
Again, Unison will receive
a percentage of your home's future value
in exchange for providing the down payment assistance.
And just like the HomeOwner program,
you don't have to pay back Unison's co-investment
until you sell, or after 30 years.
Let's talk about refinancing your mortgage.
If you decide to partner with Unison,
they will allow you
to refinance your mortgage within limits.
But securing financing could prove difficult.
Your Unison investment
is technically a form of subordinate financing.
Because of this, Unison says it's likely
that some lenders will decline your application,
especially those that provide conforming loans.
Unison also sets its own maximum authorized debt limit.
This limit is fixed, so it won't ever increase,
even if your home's value rises.
Over time, let's say you're interested in buying Unison out.
If you still live in your house after 30 years,
you'll have to buy Unison out
or sell your house and pay back the loan.
You may be able to buy Unison out by taking out a HELOC,
a home equity loan, or even a reverse mortgage,
if you're over age 62 by that time.
But you can also simply use cash to buy out Unison
at any time after the three to five year restriction period.
For example,
if you plan to use the money you receive from Unison
to invest in a second property or a business,
you may be able to use your investment returns
to pay back Unison quickly without having to sell your home.
If you're wondering if Unison is available where you live,
check out our list right here.
Right now, Unison is currently available
in about half of the US.
Let's talk fees.
Unison charges a 2.5% origination fee
that is deducted from your investment amount.
So for example,
if you're approved for a $25,000 investment,
the actual amount you receive will be reduced by $625
to $24,375.
You'll also be responsible to cover all third-party costs
that are required to close the investment.
For example,
you'll need to pay for the home appraisal yourself
as well as the settlement costs such as title,
state taxes, and recording fees.
If you're thinking, "Wow, I've never heard of this
home ownership investing concept before."
Well, it may surprise you to learn
that Unison isn't the only player in the market.
Unison's two main competitors are Hometap, and Point.
Of the three,
Unison charges the lowest origination fees at 2.5%.
It should also be noted
that Unison bases the value of your home
on the appraisal minus that fee,
and won't discount that appraised value any further.
Point, on the other hand,
reduces your appraised value by 15 to 20%
as a risk adjustment.
Unison and Point allow a maximum of 30 years
before repayment is required.
Hometap, however, requires its investments to be repaid
within 10 years, which provides much less flexibility.
Still, Hometap could be a good option
if you have a mid-range credit
as its minimum credit score is just 500.
If you're ready to apply with Unison,
begin by visiting its website in the description below,
and click the Get started button,
in the top right hand corner.
Next, you'll type in your street address
to get an instant estimate.
If it looks like your property might be a good fit
for a Unison investment,
you can continue working through the application process.
The process is similar in many ways to getting a mortgage.
A home appraisal will be required,
and you'll need to provide financial documents as well.
You'll need a credit score of 620 or more to qualify.
Unison will run a soft check on your credit reports
that won't impact your overall credit score.
That's the only credit inquiry you'll deal with
throughout the entire process with Unison.
Remember, you're not applying for a loan
that requires monthly payments.
So unlike traditional lenders,
Unison won't require a hard credit pull down the line
when you're ready to finalize the deal.
So in the end, is Unison worth it?
Well, that depends.
Most Americans build up the vast majority of their wealth
inside their homes.
That means that recommending any financial product
that erodes home equity
could leave the average person poorer.
That said, using Unison could make sense
if you wanna tap into your home equity for an investment.
For example, you may wanna buy a rental property
using Unison.
It could also make sense to use Unison
if you need cash to buy inventory for your business,
or otherwise fund your startup costs.
To learn more about Unison,
check them out using the link in our description.
Thanks for hanging out today.
This is Andy from The College Investor.
We'll see you in the next video.