In this Unison review, we’ll discuss the pros and cons of Unison HomeBuyer – a new option for financing a down payment on the purchase of a house while avoiding P.M.I. We’ll examine how it works, consider what it might cost you, and determine if Unison HomeBuyer is a good idea for your situation. Enjoy!
Are you trying to save a down payment for buying a house? It’s tough. I get it.
Thankfully, I live in the Midwest where housing is relatively affordable. But, if you live in an expensive area like New York or Los Angeles, saving for a down payment could take years.
On the flip side, you could always put some money down and pay P.M.I. (private mortgage insurance) on your new home. Of course, anybody who’s ever done that will immediately tell you how much paying P.M.I. sucks.
For starters, P.M.I. tacks on a substantial amount of money to your monthly mortgage payment. On a $500,000 house, P.M.I. could cost you an additional $120 (or more) every single month. Unfortunately, you have to keep paying that amount until you’ve earned enough equity in your home to drop the P.M.I. requirement (generally, 20% of the home’s total value).
Keep in mind, mortgages are also front-loaded with interest. During the first several years, the vast majority of your monthly payments are applied toward the interest on the loan. That means it could take years to earn enough equity in your home to dump the P.M.I.
So, what’s a family living in an area with expensive housing prices supposed to do?
Unison offers home buyers a new option for obtaining a down payment. Here’s the best part: Unison does not provide loans. That means you won’t have to stretch your dollars even further to cover yet another monthly payment.
Of course, Unison isn’t right for everybody. Let’s take a closer look at the Unison HomeBuyer program to see if it’s a good fit for you.
Unison at a Glance
- Based in San Francisco, CA
- Founded in 2004
- Over $300,000,000 in Residential Real Estate Investments
- Funding Options for Home Buyers and Current Home Owners
- Currently Available in 30 States and the District of Columbia
Unison Review: How Does It Work?
Based in San Francisco, Unison provides prospective home buyers and current home owners with new funding options to meet their specific needs. The specific type of funding is dependent upon whether you’re hoping to buy a home or access your equity. While this Unison review will focus on the Unison HomeBuyer program, current home owners can learn more by reading our Unison’s HomeOwner review here.
For home buyers, Unison can provide up to half of the down payment needed to buy a house. That is a huge chunk of change, and it can really help those in expensive markets get into a new home.
It’s important to remember that Unison does not provide loans. This isn’t something that you’re going to have to pay back on a monthly basis. Instead, Unison invests in your home with you.
Instead of requiring you to pay back the loan with interest, Unison retains a portion of your home’s equity. When you get ready to sell, Unison shares in the growth of your home’s value. On the flip side, they also share in any loss you may take on the sale of your house.
Think of the Unison HomeBuyer program kind of like a venture capital firm. If you’ve ever seen the show “Shark Tank,” you know what I’m talking about. Unison gives you the upfront capital you need for your down payment. In return, they essentially own a percentage of your home. Instead of business partners, you become partners in your home.
Where is Unison Available?
The Unison HomeBuyer program provides home buyers with up to half the funds for their down payment in exchange for an equity share in their home. As of March 2019, Unison is currently available in 30 states and the District of Columbia, including:
- New Jersey
- New Mexico
- New York
- North Carolina
- South Carolina
- District of Columbia/Washington D.C.
Unison HomeBuyer: Digging Into the Numbers
As I mentioned earlier, Unison does not profit from monthly interest payments. Instead, they lend you the money upfront and hope to see a return once you sell the home. In essence, they invest along with you in your house.
So, what percentage of your equity are you giving up…and are there any other things you should be aware of? Here’s a look at some of the hard numbers:
- Provide up to half of your down payment
- Typically claim 35% share of change in home’s value (for 50% of your down payment)
- Payment is made upon home sale or in 30 years, whichever is first
- Transaction fee of 2.5% of investment amount
- Unison does not share in loss if you sell within 3 years
As you can see, Unison does help people get into a home…but it comes at a cost. While it may be a good option for some, it’s important to thoroughly run the numbers before committing to the process.
Advantages of Unison
You’ve seen what Unison HomeBuyer can do, and you’ve got an idea of what it might cost. Here are a few of the biggest advantages of working with Unison to supplement your down payment.
#1) Fund Up to Half Your Down Payment
In my eyes, this is by far the biggest advantage to working with Unison. It can take years to scrape together a down payment, especially if you live in an area where housing is expensive. (I’m looking at you California and New York!) If you live in a city like San Francisco, teaming up with Unison may be your best shot at getting your family into your own home quickly.
#2) No P.M.I.
Look, I freakin’ hate P.M.I. Seriously, I despise it. Private mortgage insurance can cost you thousands of dollars a year, and you get absolutely nothing for it. You may as well take that money, douse it with gasoline, and set it on fire. Plus, because of the way mortgage payments are amortized, it can take years to get rid of those P.M.I. payments. So yeah, anything that saves you from paying P.M.I. is an advantage in my book.
#3) Lower Mortgage Payments
Increasing your down payment means you can borrow less money from the get-go. And when you borrow less, your monthly payments are cheaper as well. By partnering with Unison and increasing your down payment, you can reduce the amount of money you’ll owe each month. That means you can keep more of the money you make instead of sending it off to your mortgage company.
#4) Buyout is Available
It’s also important to note that you can buy out Unison’s equity share in your home after a period of three years. To buy them out, Unison requires a return of their investment plus their percentage of any profit that they would have made had you sold the house. This is known as a “Special Termination,” and the home value will be determined by a third-party appraiser.
Other Benefits of Unison
- Keep cash on hand – When buying a house, it’s always good to have extra cash sitting around. By using Unison’s money to complete your down payment, you’ll have extra cash for expenses like furniture, decorations, repairs, and more.
- No additional payments – Since Unison does not provide a loan, you don’t have to worry about paying it back on a monthly basis. That can definitely help with your monthly bills.
- The house is yours – Although Unison claims a percentage of the home’s change in value, they don’t tell you what to do with your house. They’re essentially a silent partner. The house is yours to do with as you please. (That also means you’re responsible for all the maintenance and repairs.)
Disadvantages of Unison HomeBuyer
Although the Unison HomeBuyer program may be a good option for some, there are definitely some glaring disadvantages to using it. For starters, giving up 35% of your home’s change in value is a pretty hefty price to pay, especially if you don’t plan on buying Unison out. If your home’s value grows significantly, you could end up paying far more to Unison than you would have paid in P.M.I.
Additionally, Unison seems to be getting a pretty good deal for a much smaller amount of risk. When providing 50% of your down payment, Unison typically claims a 35% stake in your property’s change in value. To avoid P.M.I., you’ll usually need to put down 20% of the sales price. Half of that is 10%. Thus, for a 10% investment, their return is 35% of the growth.
Because they make 2.5% on the cost of the investment when you buy the house, Unison has also reduced their overall risk. While I don’t begrudge anybody for making money, that is a heck of a return.
Finally, Unison is definitely not meant to be a short-term strategy. They will not share in a loss of value if you sell the house within three years. So, if there is a chance you may move out in that time, Unison is probably not a good fit for you.
Who Should Consider Unison HomeBuyer?
First-time home buyers in expensive markets – If you are a first-time buyer living in an expensive area, Unison may be a good fit for your needs. It provides a way to fund a full down payment without having to save all the cash yourself.
Potential buyers nearing a 20% down payment – Buyers who are already saving and are close to having a 20% down payment may consider using Unison to get into a new home quicker.
Who Should Avoid Unison HomeBuyer?
Current home owners – If you already own a home, it doesn’t make sense to partner with Unison to upgrade. You should use the equity you already have to make the down payment on your new house. If you own a home and can’t afford the down payment on a new one, you’re likely buying too much house. (Current home owners can also use Unison to access their equity. Learn more here.)
Buyers angling for a more expensive house – Partnering with Unison to purchase more house than you could otherwise afford is usually a bad idea. You’re giving up a lot of equity (and potentially long-term wealth) to get more house than you can really afford.
Those living in affordable housing markets – If you live in a market where housing is fairly affordable, Unison is probably not a good option. Instead of giving up your equity, save the down payment in a high yield savings account instead.
Buyers planning to sell within three years – Remember, Unison does not share in any losses if you sell the home within three years. If there’s a chance you’ll be selling within that time frame, you might be taking a gamble.
Alternatives to Using Unison
- Wait to buy. – The most obvious alternative to using Unison is that you can wait to buy a house until you have your 20% down payment ready. Sure, it takes more time, but your patience could pay off down the line.
- Put down less than 20% and pay P.M.I. – If you just can’t wait, you can also put down less than 20% and pay P.M.I. on your mortgage. Although it’s not ideal, paying P.M.I. isn’t the end of the world…especially when you’re looking at giving away up to 35% in the potential growth of your home’s value.
- Find a more affordable house. – Instead of purchasing your dream home, look for a cheaper house. A house that sells for less requires a smaller down payment. By searching for a more affordable option, you may already have the down payment you need.
Unison Review: Is It a Good Idea?
So, is partnering with a company like Unison a good idea? Well, that depends.
I can definitely see where the Unison HomeBuyer program may be useful in areas where real estate is expensive. If you’re living in Boston or San Diego, for instance, you may feel like your dreams of owning a home are practically unreachable. By helping to fund your down payment, Unison could certainly be a good fit for you.
On the other hand, doing business with Unison comes at a steep cost – often 35% of the change in your home’s value. That’s a ton of equity, and it doesn’t make sense if you live in a more affordable area of the country. Saving up your own down payment, finding a cheaper house, or simply paying P.M.I. may be better options.
Regardless, Unison is certainly filling a need for potential home buyers. Their unique funding programs are sure to attract buyers of all stripes, regardless of whether they are a good fit or not. Before making any decisions, it’s extremely important to carefully consider all of your options.
If you’ve made it this far, thanks so much for reading our Unison review. Good luck with your housing search!
What do you think of Unison? Let us know in the comments below!