A New Home-Purchase Financing Approach Could Disrupt Traditional Mortgages
Shared-equity agreements may be the new disruptive path to home ownership. Several start up companies are offering this financial instrument to lower down payments for home buyers. Instead of a traditional mortgage the shared-equity company takes a percentage of the home’s future price in exchange for the down payment. It’s also emerging as an alternative to home equity loans. The consumer gets more buying power and if the home’s value falls, the funder shares the loss. Landed Inc offers these to teachers and other educators. Funding comes from several sources including the Chan Zuckerberg Initiative, the philanthropical organization created by Facebook’s founder. Patch, Homes Inc., Point Digital Finance Inc. and Unison Agreement Corp also offer this approach as an alternative to traditional financing paths. Loan lengths are negotiable and can range from a few to thirty years. Some even allow prepayment. Shared-equity contracts do not add to a consumer’s outstanding debt and tend to have more flexible qualification standards than traditional home equity, refinancing, or cash out of equity loans. With home prices increasing faster than average wages and as Millennials cope with large student debt, this approach to a down payment may grow. Property investors could see a more competitive market for profitable single-family investment properties as consumers utilize this new tool to home purchase.