By Kathleen Pender of San Francisco Chronicle
As Bay Area home prices soar, coming up with a 20 percent down payment can feel like walking up the down escalator.
Wannabe buyers who don’t have parents to help out have several options. They can borrow more than 80 percent of the purchase price with a first mortgage and pay private mortgage insurance. They can borrow some of the down payment with a home equity loan or line of credit.
Or they can go with a lesser-known option: giving up part of their future appreciation in exchange for down payment help from a government or private-sector program.
San Francisco’s Down Payment Assistance Program for market-rate homes is an example of government aid. First-time buyers can get up to $375,000 toward a home or condo in the city, but funds are limited and there are income restrictions. The application deadline this year is Aug. 21.
Unison, formerly known as First Rex, offers a private-sector alternative. There are no income restrictions and buyers don’t have to be first-timers, but they must live in the home, qualify for a loan and be in one of the 12 states (including California) where Unison operates.
In a typical Unison HomeBuyer deal, the buyer puts down 10 percent of the purchase price, gets 10 percent down from Unison and borrows 80 percent with a first mortgage, thereby avoiding private mortgage insurance. In exchange, Unison shares in 35 percent of any future appreciation or depreciation.
The homeowner pays nothing to Unison until they sell the home, except for a setup fee equal to 2.5 percent of the down payment received. When they sell, they owe Unison the original investment plus 35 percent of any appreciation or minus 35 percent of any decrease in value.
The homeowner also has the option of buying out Unison any time after three years under the same terms. The home’s value would be determined by an independent appraiser.
Because Unison’s investment is not a loan, homeowners don’t get a tax deduction for the shared appreciation payment, like they could for mortgage interest.
The deal can make sense for buyers who think home prices are nearing a peak and don’t have a 20 percent down payment or have it but don’t want to sink it all into a home, said Scott Whitlock, sales manager with First California Mortgage in Napa. Whitlock has closed four deals with Unison.