Shared equity mortgages are also called “partnership mortgages,” because the buyer has what amounts to a silent partner in their home purchase and its future sale.
Alternate name: Partnership mortgages
How a Shared Equity Mortgage Works
In most cases, the homebuyer won’t owe the lender any payments unless they need to refinance the loan, or until they sell the house. They might also need to live in the home a certain number of years before they can take either of these actions. Some shared equity mortgage programs put a cap on how much you’ll be able to sell the home for in the future, or even place limits on whom you can sell it to, based on the buyer’s income. This rule is designed to ensure that people who live in a certain area can afford to stay there, and that owning a home remains an option for people who are in the middle or lower income range.
Pros and Cons of Shared Equity Mortgages
There are many benefits to shared equity mortgages. If you are thinking of buying a home for the first time, or struggling to get your foot in the door, you have much to gain from these programs. These programs can reduce the costs of buying a home to a large degree. They may even help a buyer get rid of the down payment and closing costs in full. Shared equity mortgages can also lower monthly payments and help ensure that housing in a given city or town is more affordable on the whole. Shared equity mortgage programs can also help buyers avoid the costs of private mortgage insurance (PMI). Some lenders require PMI when a down payment is less than 20% of the home’s sales price, but if the investor or shared equity lender provides enough funding to cover the down payment, PMI won’t be needed by other lenders. What you give up with these programs is full stake in the future profit. They put a hard limit on how much you can make off the sale of your home.
Private Shared Equity Mortgage Programs
Shared equity mortgage products are now cropping up from private sources as well. Some of these options include Haus, Noah, Point, and OWN Home Finance. Private versions offer a range of advantages. Some will match a portion of every dollar you put toward the upfront costs of your home, while others share in certain parts of your equity, some even after you’re in the home.
Is a Shared Equity Mortgage Right for You?
Shared equity mortgages can be a good option if you’re buying a home for the first time, if you have a low income, or if you simply don’t have much saved up for a down payment or for closing costs. They do come with a long-term cost, so make sure you weigh all the outcomes and risks of sharing your home’s equity with an outside party. Having a measure of home equity can be a helpful tool for your finances later in life as well. It can allow you quick access to cash, or funding to support home projects, a pathway to retirement, or any number of other goals. You can apply online via the organization’s website to get a shared equity mortgage. You’ll first have to fill out a form to see whether you qualify for the program. As with other mortgage lenders, you’ll need to provide information about your income, credit, debt load, and more. Your final eligibility and approval are based on your income and household size, as well as the total amount of the loan. There may also be fees involved if you are approved. You can expect to pay small service fees for the labor and process, as well as origination fees for the loan, or appraisal fees for the home.
