Shared Appreciation Mortgage Guide
A shared appreciation mortgage loan is an increasingly popular consumer loan for homeowners. This relatively new product is offered by several lenders and has pros and cons associated with it that consumers should understand. It allows homeowners to tap into the home equity that has been built up in exchange for a minor ownership stake in the property. The lender then participates in the increase or decrease in the value of the property over time. There are no monthly mortgage payments but homeowners are still responsible for paying property taxes, insurance, and maintenance. The repayment of the loan is deferred until the homeowner sells the home or at the end of the duration of the loan terms.
How Does a Shared Appreciation Mortgage Work?
To qualify for a shared appreciation loan you must own a home and have enough equity built up in your home. The loan is ideal for homeowners who want to tap into the equity built up. If a consumer qualifies a lender will give a portion of that built up equity (typically 5-20% of your home’s current value) in exchange of a stake of the future appreciation (or loss of value) in your home. These loans are ideal for homeowners who may not qualify for a HELOC or home equity loan due to credit or if they’re not yet 62 years old to do a reverse mortgage loan.
What Are The Pros and Cons of a Shared Appreciation Mortgage?
There are several considerations to make before deciding to proceed with a reverse mortgage loan. As with any large decision, it’s helpful to have an understanding of the pros and cons associated. Some of them include:
- You continue to live in your home and retain title to your home. The lender has no occupancy rights to your property.
- You generally receive the proceeds of the loan as tax-free cash in which you can use the money as you see fit. It is recommended though to speak with your financial advisor to verify your specific situation.
- You do not make any monthly mortgage payments during the course of the loan. You do have to follow the constructs of the loan guidelines and the loan typically needs to be paid back at the duration of the time period agreed upon.
- The process is incredibly fast in most cases. Loans can typically be processed and distributed to individuals within two to three weeks.
- There are no age requirements like with a reverse mortgage loan.
- Great alternative to HELOC or home equity loan for those who don’t have perfect or good credit.
- There is a 2.5 – 3% origination fee associated with the loan. This varies between lenders.
- The loan is typically due and needs to be fully paid back with appreciation within approximately ten years.
- Not all homes may qualify and not all lenders are licensed in all states.
What is the Process of Getting a Shared Appreciation Mortgage?
The process of getting a home equity alternative loan is fairly straightforward and typically entails the following steps:
- Research and identify companies that may be right for you. Fill out an online form or give them a call to start the process.
- Discuss what options may be available to you; what you may qualify for; what the time required to close your loan looks like and to have your questions answered.
- Check to see if you qualify – Homeowners need to check to see if they qualify after answering some questions which typically takes just a few minutes through a lenders website or over the phone.
- The lender makes you an offer – The offer is typically for between 5% to 20% of your home’s current value.
- Appraisal of home – Your home is appraised and the cost of the appraisal is paid for by you (typically $500 – 700).
- The lender pays you – You meet with a notary to sign the agreement and within a few days the money is transferred to you.
- Payback loan – Lender is typically paid back when you either sell your home, at the end of the term or during the term when you pay them back.
Please note that not all lenders have the same process. Some may have more or fewer steps depending upon their process. Please inquire with the lender at the start of the discussion to outline their own process to properly set expectations.
How We Rate Shared Appreciation Mortgage Lenders
We independently identify home equity alternative companies. From there our editors review them in a myriad of ways from impartially secret shopping to checking consumer reviews to validating fees, types of products offered, and time to close amongst other criteria. Our goal is to present objective representations of companies to give consumers informed information to make a decision. Disclosure: We do receive advertising compensation from some partners. For additional details please click here.