Have you found just the right home – but it is not within your price range? Would borrowing 10% of your home purchase price at 0% interest with no monthly payments help?
A co-investor, or equity-share partnership, might be the right solution. Here are the details:
A large nationally recognized investment firm (this is not private money or expensive hard money) now offers a true co-investment program that offers borrowers up to 10% of their home purchase price to use towards their down payment. This amount is contributed at 0% interest and requires no payments! This means that a borrower’s base loan payment is reduced and any expensive PMI requirement is eliminated.
Let’s take a look at the numbers. For this scenario, we’ll assume a purchase price of $605,500. We’ll also assume that the buyer has 5% saved to use as a down payment:
When you make a 5% down payment you will see that your payment comes with a hefty $407/month mortgage insurance payment and your income will need to be at least $115,250 annually to qualify. If you have other debt payments like car loans and credit card payments, you will need to earn even more to ensure your debt-to-Income ratio stays within qualifying guidelines.
Now let’s look at how the numbers change when you make a 10% down payment. In this set of calculations you will see that with 10% down, the monthly mortgage insurance payment drops to just under $259 per month and your qualifying income, assuming no other debt payments, drops to just under $107,000 annually.
Finally let’s look at the numbers using a co-investment partner which enables you to make a 20% down payment. In this set of calculations, you will see that with 20% down you eliminate the monthly mortgage insurance payment entirely and potentially improve your interest rate due to the lower loan to value at 80%. Also you’ll see that you’ll need to earn far less annual income to qualify.
How does it work?
The co-investor will loan you up to 10% of the purchase price of your home. You need to contribute the other 10% (please note – 5% of your contribution can be gift funds from family) and the total remaining loan amount cannot exceed 80% of the purchase price or appraised value of your home, whichever is lower.
In return for the 10% contribution towards your down payment (at 0% interest and no monthly payments), you agree to share 35%-45% of the net increase in your home’s equity over length of time you use the funds. It sounds like a lot…but it is not. Here is one example of projected increase in value of a home over 5 years and the amount that will be shared with the co-investor assuming the home is sold after 5 years:
Here is a set of calculations showing how much you can save by using this co-investor program – over 5 years, you can save a significant amount of money by using this program to help you make a 20% down payment.
As you can see, even if you share 35% of the net increase in value with the co-investment lender, you’ll potentially benefit by saving thousands more dollars in the long run.
One of the things I appreciate most about this program is that buying a bit more home than you might otherwise be able to qualify for won’t additionally stress your monthly household finances!
Here are some FAQ’s to help with more information about how this program works:
Will this program delay my closing timeline?
NO! This lender has NEVER missed a closing deadline.
Isn’t 35% a lot of equity to give up?
No. Actually, it can be cheaper to use this financing strategy. After a 3 year commitment, a borrower can buy the co-investment partner out either by refinancing or with personal funds. An appraisal will be ordered to determine the current market value and you will repay the down payment amount plus the net increase in the value of the home. This can actually be less costly than using financing with a 5% – 10% down payment.
What happens if my home goes down in value?
The co-investor shares in the loss! What I appreciate about this program is that it is fair to the client. If the net value of the property goes down when the property is sold, the investor will share in the net loss in equity. So in our example above, if the investor has contributed $60,000 towards your down payment and the value of the home goes down by $50,000, then the investor, at the time of payout would receive the full down payment back MINUS their share of the loss (in our example $50,000 x 35% = $17,500) for a net repayment of $42,500.
Is there a minimum loan amount and sales price?
Yes – the minimum base loan amount is $484,351 and this translates into a minimum purchase price of approximately $605,500.
Can this program be used to buy investment property?
No. This program is for owner-occupied properties only. However, you may purchase a multi-unit property up to 4 units using this program but you MUST occupy one of the units. Once you decide you want to move from your unit, then the co-investor must be repaid.
If you’re ready to begin the process of becoming a homeowner, I’d welcome the opportunity to help you with your financing. I’ll put my 30+ years of number crunching experience to work for you to ensure you receive the best financial terms possible. Give me a call at (800) 680-7875 or if you prefer, send me an email message to Linda@LindaOnLending.com.
And if you’d just like me to get the process started, you can easily apply online. Your application comes directly to me and I personally handle your financing every step of the way!