You may have seen ads for or heard about fairly new company called Unison, which offers an alternative to home loans with something they call “home co-investing.”
Team Clark has received a number of questions about the company and whether it is a legitimate alternative to getting a mortgage or home equity loan, so we thought we’d take a closer look at their services and whether you should consider doing business with them.
- How does Unison home co-investing work?
- How much money will Unison invest in your property?
- Where is Unison currently available?
- Should you consider using Unison?
How does Unison home co-investing work?
Unison offers two products: one called “HomeBuyer” and one called “HomeOwner.” As you might guess, one is targeted at people looking to buy and home and the other is meant for those who already own one.
What does Unison HomeBuyer do?
Unison says that its HomeBuyer product can allow you to increase your down payment 20% or more through their co-investing program. Unison essentially goes in on the down payment with you, then shares in any increase (or decrease in the value of your home. For HomeBuyer, Unison charges a 2.5% origination fee and there may be third-party expenses like closing costs and credit reporting charges.
After three years, you have the option of buying Unison out by paying back the amount of their initial investment plus or minus their percentage of any increase or decrease in the value of your home as determined by an independent third party appraisal.
If you choose not to buy Unison out at any point after that three years, the same thing would happen when you eventually sell your home — up to 30 years later.
What does Unison HomeOwner do?
Unison HomeOwner works in a similar fashion for people who already own their homes, but want to access equity in those homes to pay off debt or undertake home renovation projects.
“Unlike a loan, there is no added debt, monthly payments or interest,” the company says. In return, we share in a portion of your home’s value when you decide to sell.”
As with HomeBuyer, when you sell your home or 30 years passes, Unison is paid from the sale proceeds based on the fair market value of your home.
How much money will Unison invest in your property?
With HomeBuyer, Unison will contribute between 5% and 20% of the value of the home you are buying, up to $500,000.
Here is example from their site, with Unison contributing 10% in this case to get you to a 20% down payment:
With HomeOwner, Unison says that it will convert up to 17.5% of your home’s value into cash, again up to $500,000.
When you go to sell (or after 30 years) Unison’s share of your home value depends on the percentage of the value of your home they invested to begin with.
In this case, accessing 10% of your home’s value through HomeOwner means that Unison would be entitled to (or give up, in the case of depreciation) 40% of the change in value of your home from the time of their investment:
Where is Unison currently available?
- New Jersey
- New Mexico
- New York
- North Carolina
- South Carolina
- District of Columbia / Washington D.C.
Should you consider using Unison?
Money expert Clark Howard says he understands why Unison could be attractive to people in a tough situation, but he is not a fan of their model.
“If your home is sellable, you have equity, and you’re that short of cash, you really should consider selling the house.”
In selling the house and buying or renting something more affordable, you could take the difference and use it to pay down debt or establish an emergency fund.
“The main issue I have with this is that you are giving Unison a part of your equity in your home, but you are still responsible for all of the upkeep and repairs — not them. They get the benefit of the improvements you make and the appreciation in value but that’s all money out of your pocket,” Clark says. “I would consider this a last resort.”
Technology has already changed the way we do many things, so it’s no surprise that companies like Unison are trying to disrupt the home loan model. Still, sometimes the traditional way of doing things makes the most sense — at least for the time-being.