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Home equity solutions provider Unison launched a new product on Tuesday that combines the features of traditional mortgage financing and emerging home equity investment (HEI) options.
The San Francisco-based Unison calls its new offering the Equity Sharing Home Loan. The company explained that the product operates as a ”hybrid between debt and equity.” It’s initially available in Arizona, Utah and Colorado, and a spokesperson said the company has plans to expand into states representing 50% of U.S. home equity by the end of this year.
The product is a second mortgage with a below-market interest rate that allows a homeowner to tap into their equity without refinancing their existing mortgage. Like other types of HEI products, it allows Unison to share in the future appreciation of the property. But it also differs from a typical HEI by including qualification and repayment terms that are similar to a home equity loan or home equity line of credit (HELOC).
”Whether homeowners want to renovate their homes, consolidate high-interest debt, or secure their financial future, Unison’s Equity Sharing Home Loan offers a versatile and customizable solution to suit their individual needs and aspirations,” Unison President Ryan Downs said in a statement. “With lower monthly payments, made possible by shared home appreciation, homeowners can confidently pursue their financial goals with peace of mind.”
The product includes a 10-year, interest-only repayment term. Eligible borrowers must have a FICO score of 680 or higher and a debt-to-income ratio of 40% or less. The maximum combined loan-to-value ratio on the property cannot exceed 70%. Borrowers with higher credit scores can qualify for more favorable loan terms, according to Unison.
Borrowers can repay the loan early without penalty. This includes repayment of the initial loan amount, any deferred interest and the agreed-upon share of appreciation. Additionally, homeowners who make improvements to their property, beyond anything that is deemed ”regular maintenance,” can request a credit for the added value after three years to reduce the shared-appreciation component of the loan.
Unison has plans to securitize these loans on the secondary market, its spokesperson explained. In June, the company closed a $215 million securitization backed by home equity investments. The transaction was rated by DBRS Morningstar.
As of second-quarter 2024, ICE Mortgage Technology reported that U.S. homeowners have a collective $11.5 trillion in tappable home equity, defined as the amount that can be accessed while retaining a 20% equity cushion.
Home equity investments are gaining traction as homeowners seek novel ways to access equity without taking on additional debt. Companies like Point, Hometap, Unlock and Aspire are making HEIs available to consumers, a task made easier through demand from secondary market investors. HEI providers estimate the market is worth $2 billion to $3 billion per year.
