Whether it’s your first time to buy a home or not, mortgage borrowers know that the whole home buying process is a challenge. From your home loan application to house hunting, it’s definitely not an easy road to take.
But a lot of borrowers would agree that saving enough money for a down payment is one of the most difficult burdens they would face. Especially if you’re a low- to middle-income earner.
Thankfully, there is such a thing as a shared equity mortgage. Other than basic down payment programs, this plan is something that can help come up with the right amount of money as down payment on a home.
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What is a Shared Equity Mortgage?
A shared equity mortgage is a mortgage program where a co-investor helps you get enough money as down payment on your home.
Co-investors could be parents, family members, or your lender. The property would be owned fully by the borrower but the co-investor can take part of the property’s value should the owner decides to sell.
Where do you find one?
In a statement, Rob Chrane, CEO of Down Payment Resource, said, “Municipal shared equity programs have been around for a long time, and today, we are seeing more private investors enter the market.”
To date, DPR recognized 33 shared equity programs. These programs could generally be obtained from local governments and non-profit organizations.
But in high-cost locations, on the other hand, there are private investors available to buyers to finance homes that are more expensive.
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Who is it for?
In general, this program is open to everyone who wants to qualify. But keep in mind that there might be little differences depending on your income.
For low- to middle-income earners or households, some of the shared equity mortgages are allowed when buying properties at low prices.
On the other hand, home buyers in high-income locations take advantage of the program to help finance their down payment since higher home prices require equally higher down payments.
What are the pros and cons?
This program has its own share of upsides and downsides. Knowing these things will help you weigh out it this is a good idea or if it’s a good option for your situation.
Among its upsides is that the plan would not require you to pay up a private mortgage insurance or a PMI because, with the help of this program, you would be able to put 20% as down payment.
If you like the thought of having smaller monthly payments for your mortgage, having able to put down a good amount of money on a home would let you have that privilege.
An added risk comes into play if ever the home’s value in equity goes down. Since your home is an investment, you could lose a good amount of money if ever this happens to the property.
On the other hand, when owners decide to sell the house, both the homeowners and the investors share the profit. This could be a downside for some. But sometimes other people see this as a win-win situation especially when done right.
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