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Shared appreciation loans have become an increasingly popular option for homebuyers looking to get into the housing market. But what exactly are these loans, and are they the right choice for you? This comprehensive guide breaks down everything you need to know about shared appreciation loan programs.
What is a Shared Appreciation Loan?
A shared appreciation loan is a special type of financing that helps borrowers afford a home. Like any mortgage you get a lump sum to put towards your down payment and closing costs. However with a shared appreciation loan, you agree to pay back the lender a percentage of any appreciation or increase in the home’s value over time.
For example, let’s say you get a $50,000 shared appreciation loan that entitles the lender to 25% of the home’s appreciation. If you sell the house for $100,000 more than you bought it for, the lender would get 25% of that $100,000 increase, or $25,000.
The key benefit is that shared appreciation loans can help buyers who might not otherwise qualify for a mortgage The tradeoff is that you split any gains on the home’s value with the lender,
Who Offers Shared Appreciation Loans?
One of the largest providers is the California Housing Finance Agency (CalHFA). Their shared appreciation loan program is called the California Dream for All (Dream For All). It pairs with CalHFA’s Dream For All Conventional first mortgage to provide up to 20% of the purchase price for down payment and closing costs.
Other organizations like housing non-profits and community banks may also offer shared appreciation loans. These programs help expand homeownership opportunities to lower income buyers.
Dream For All Program Overview
CalHFA’s Dream For All shared appreciation loan has some specific eligibility requirements and terms:
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Borrowers must be first-time homebuyers – No ownership interest in 3 years
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At least one borrower must be first-generation – Parents didn’t own U.S. real estate
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Up to $150,000 loan or 20% of price
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Deferred payments, due when home is sold
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Repay original loan amount plus 15-20% appreciation split
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For use with CalHFA Dream For All Conventional first mortgage
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Must meet income and underwriting requirements
Let’s take a closer look at some of the key features and requirements.
Eligibility for Dream For All
The Dream For All program has a few unique eligibility standards beyond what traditional lenders require:
First-Time Homebuyer
To qualify, borrowers cannot have owned a home in the past 3 years. This includes:
- Having your name on a property title/mortgage
- Living in a home owned by your spouse
- Having an ownership interest in a residence
This promotes access for new homebuyers rather than those moving up.
First-Generation Status
At least one borrower must be “first-generation” – meaning their parents did not own a home in the U.S.
You meet the definition if:
- Your parents never owned U.S. real estate
- You were in foster care or institutional care
This targets buyers without family homeownership experience.
Owner Occupancy
All borrowers must move into the home as their primary residence within 60 days of closing. Non-occupant co-borrowers or co-signers are not eligible.
Property Type
The home must meet CalHFA’s first mortgage requirements. Typically, single family residences, condos, or townhomes.
Dream For All Loan Terms
CalHFA designed the shared appreciation loan terms to promote long-term ownership:
20% Down Payment Assistance
Borrowers can get up to 20% of the purchase price or $150,000, whichever is less, for their down payment and closing costs. This significantly lowers the barrier to entry.
30 Year Term
The shared appreciation loan term matches the first mortgage, up to 30 years. You make no monthly payments, and the down payment assistance is deferred until selling the home.
15-20% Appreciation Split
When you sell, 15-20% of the home’s appreciation goes back to CalHFA. For lower-income buyers at or below 80% of area median income (AMI), the split is 15%. For other buyers, it is 20%.
Loan Due on Sale
The original down payment amount plus your appreciation split is repaid when you sell the home or refinance/transfer the first mortgage. This ensures CalHFA can re-use the funds to help future buyers.
One-Time Refinance Option
Borrowers can refinance their first mortgage one time without repaying the shared appreciation loan, keeping payments low.
Tips for Using Dream For All
If you’re considering a Dream For All shared appreciation loan, keep a few tips in mind:
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Review the full eligibility and program requirements carefully
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Make sure you’re comfortable with the appreciation repayment structure
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Work with a CalHFA-approved lender
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Be strategic about when you sell to optimize equity gains
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Consider projected area home values when house hunting
The Pros and Cons
Shared appreciation loans come with unique tradeoffs. Here are some key pros and cons to weigh:
Pros
- Lower down payment and monthly costs
- Helps buyers who may not otherwise qualify
- Locks in purchase price for equity gains
Cons
- Must repay large lump sum when selling
- Reduced incentive to improve/remodel
- Less control over sale timing
Overall, shared appreciation loans allow more consumers to enjoy homeownership. But they require accepting a smaller share of equity growth in exchange for affordable entry.
Is a Shared Appreciation Loan Right For You?
Here are a few signs a shared appreciation mortgage could be a good fit:
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You have some savings but not enough for 20% down
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You want to buy sooner than saving for a full down payment
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You like the idea of predictable payments now in exchange for less equity later
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You qualify for a CalHFA Dream For All Conventional first mortgage
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You plan to stay in the home long-term
If this sounds like your situation, a Dream For All shared appreciation loan could be an option worth exploring. Be sure to evaluate both the benefits and tradeoffs. With the right planning, it can be an effective way to buy a home even with limited funds.
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- A shared appreciation mortgage is a type of home loan in which you exchange a portion (share) of your homes appreciation for a lower interest rate.
- This type of loan isnt readily available. It might be an option if you need to modify your existing mortgage.
- Rather than look for a shared appreciation loan, you can lower your interest rate in other ways, including with a higher credit score and down payment.
A shared appreciation mortgage is a unique home financing arrangement. It isn’t a common option today, although some variations of it still exist in certain loan modification situations. Here’s what to know.
Example of a shared appreciation mortgage Say you bought a home for $330,000 with a shared appreciation loan that gives the lender a 20 percent share. A decade later, you sell the home for $485,000. At that point, you’d owe your lender $31,000, or its appreciation share.
SAMs are similar to shared equity mortgages in that they both offer a more affordable route to homeownership. With a shared equity mortgage, a company invests in the home, such as by putting up the down payment or closing costs. This helps borrowers who might not have the upfront cash to make the purchase. The shared equity company retains a stake in the home, and recoups its equity at resale.
How To Use The Dream For All Shared Appreciation Loan Program
What is a shared appreciation loan?
For Borrowers with incomes above 80% AMI using the HomeReady® Lookup Tool and less than or equal to the CalHFA Dream For All income limits, the Shared Appreciation Loan provides up to 20% down payment and shares in up to 20% of the home price appreciation.
What is shared appreciation and how does it work?
Shared Appreciation is a type of loan where Dream For All provides a loan for 20% of the home purchase price. The homeowner pays back the original loan amount plus 20% of any appreciation in the value of the home.
What is a dream for all shared appreciation loan?
The Dream For All Shared Appreciation Loan (Shared Appreciation Loan) is a shared appreciation loan program that provides loans for down payment to qualified homebuyers. Upon sale or transfer of the home, the homebuyer repays the original down payment loan, plus a share of the appreciation in the value of the home.
What is a’shared appreciation’ loan?
The program’s next round, launching today, keeps the same “shared appreciation” lending model: The state will give first-time homebuyers money towards a down payment — up to 20% of the purchase price or $150,000, whichever is lower — then it will get paid back the loan plus a share of the home’s appreciation whenever it sells again.