What exaclty is an Equity Share Program?

A shared equity mortgage is an arrangement under which a lender and a borrower share ownership of a property. The borrower must occupy the property. When the property sells, a percantage of the profits go to each party, according to their equity share agreement.

How does share equity work?

With a shared equity mortgage or Partnership Mortgage a lender will agree to give you a loan alongside your main mortgage in return for a share of any profits when you sell your house or repay the loan in the future

What is an example of equity in real estate?

Let’s say you want to buy a property but don’t have a down payment.  A lender or a 3rd party agrees to give you a down payment for a house in exchange for an equity share in the future.  Essentially, you are going into a partnership with this person or entity.  When you sell the house in the future, you will have to typically pay back the original down payment along with a percentage of agreed upon equity.  As an example, if you buy a house for $400k and sell it 10 years later for $500k with a 20% equity share and a 20% down payment.  In this scenario, when you go to sell the house you have $100k profits of which 20% would go to the other party that agreed to the equity share along with the original 20% down payment investment.  This would translate to 20% or $80k of the original investment along with 20% of $100k profits which is another $20k.

What is the good and bad about equity shares?

Good 

• let’s you purchase a house that you might have never been able to buy
• many times the up front down payment is interest free which keeps your payment much lower
• you capitalize on future appreciation even though you have to share a percentage of. Otherwise, you might still be renting

Bad

• might not be availalbe everywhere
• not all properties qualify
• you have to split future profits which can be substantial
• there are low down payment loans you might qualify for
• most of the risk falls on the person giving the money up front in exchange for future profit. If there is very little or no appreciation, there might not be much upside

If you have any questions about an equity share, please make sure to contact us directly!

Do your parents need to buy a house but cannot qualify? Find out about our Family Opportunity Mortgage Program.