New down payment option could boost homeownership!
/New down payment assistance is putting homeownership within reach of more consumers and boosting the buying power of others, sometimes by hundreds of thousands of dollars.
Federal mortgage guarantor Freddie Mac is piloting a groundbreaking program that lets homebuyers get half of a 20 percent down payment covered by a financial firm in exchange for home equity.
The down payment assistance comes from Unison Home Ownership Investors (formerly First Rex) — a San Francisco-based firm that invests in homes alongside owner-occupant buyers and lets homeowners sell home equity for cash.
How the program works
Participating borrowers can fork over a 10-percent down payment and end up with the same monthly mortgage bill as borrowers who use their own money to cover the full 20 percent for the same loan but don’t use the program.
In exchange for covering half of a down payment, Unison Home Ownership Investors will realize part of the gain or loss of a home’s value — with the payout (or loss) likely usually occurring when the property sells in the future. Borrowers do not pay any interest on a down payment contribution from Unison.
The program marks the first time that a “shared-equity” scheme that involves no interest payments has been approved by a federal mortgage agency, according to Unison and some industry insiders.
That sets mortgages with investor-supported down payments up for widespread use if Freddie Mac expands the experiment.
Mortgages with Unison assistance don’t require private mortgage insurance (PMI) because they use a 20-percent down payment. Freddie Mac holds these loans to the same underwriting standards as mortgages that use a 20-percent down payment covered in full by the borrower (with no assistance from an investor).
Borrowers can buy out Unison Home Ownership Investors’ stake in their property after a few years, or they can let the company hang on to the equity for up to 30 years. At that point, they would have to buy out Unison by refinancing or selling.