One lesser known option in the mortgage playing field is the shared equity mortgage. Also known as a partnership mortgage, a shared equity mortgage can be a good way to purchase a home with little or no money down. In such an arrangement, the borrower/homebuyer has an absentee partner who, as the investor, provides all or some of the down payment.

Equity sharing is not as popular in a slowly appreciating real estate market as in a rapidly appreciating one when equity investors are easy to find. A type of equity sharing called tenants-in-common partnerships is becoming increasingly popular, especially in high-priced markets.

First-time buyers are usually most interested in a TIC arrangement because it gives them a way to buy property collectively with an unrelated partner.  However, loan underwriting standards are more complicated with these types of deals because lenders have more than one party’s financial situation to assess. It is a good idea to hire an attorney to help draft a shared equity agreement.

However, it’s important to note that shared equity and shared appreciation mortgages are not the same thing. With a shared appreciation mortgage, or SAM, a borrower receives a below-market interest rate in return for the lender receiving a share, usually 30 to 50 percent, in the future appreciation of the property upon its sale.

Introduced in the early 1980s, when interest rates were high enough to make qualifying for a mortgage a real challenge, the SAM has never really caught on.

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Until next time,

Melinda