A review of Unison, an alternative to home equity loans
For homeowners who wanted to tap into their home equity to get a loan, there used to be only a few options available, mainly home equity loans and HELOCs.
A few years ago, a new breed of lending company emerged that offered to “share” the equity in your home. The way it works is that they give you a certain amount of cash in exchange for “owning” part of your equity. Unison is one of these companies. Another company in this category is Point.com. Each equity sharing company operates a little differently, but the premise is similar: you get money, you share your home equity with them, and when you sell, they get a certain amount of the value of your home back.
Similar to Point, Unison offers a product for homeowners where they give you cash to “share in the change in value of your home when you sell”. But there are some subtle differences.
How does Unison work?
The website gives little detail about the exact mechanics of it, but what they do say is that they give you a certain amount of cash based on the equity that you have in your home, and charge you a fee, which is a percentage of the money they give you, plus they charge you a portion of the appreciation of your home equity.
What fees do you pay?
Unison charges a 3.9% transaction fee on the amount of money that they give you.
Unison also charges a percentage share of your future equity, between 17.5% and 70% with the most common share being 35%.
The term appears to be 30 years with Unison. “After 30 years, you will need to either buy out Unison’s investment, sell the home, or apply for an extension from Unison.”
When can you buy them out?
Anytime after 3 years.
How much will you owe them if you intend to buy them out?
What you owe them will appears to depend on how much your home is worth at the time that you buy them out. This is because they charge a percentage of your future equity, “between 17.5% and 70% with the most common share being 35%”. It is impossible to know the future, and therefore, impossible to know how much you will need to come up with in order to buy them out.
Can you rent your property?
It appears that you cannot.
How much money does Unison give you?
Between 5-20% of the market value of your home.
What paperwork is involved and does it affect the ownership of the home?
Unison places a second lien on your property, similar to what a lender would place if you got a second mortgage. They also record a Memorandum of Agreement which “gives public notice of our interest in and lien on the property”.
How does Unison compare to other options a homeowner might use to get a loan?
Other standard options for homeowners who need a loan are HELOCs, home equity loans, or personal loans. You can read this article that compares a HELOC to a personal loan. The APRs are around 4-6% for a HELOC and around 6%-11% for a personal loan.
The APR for a Unison arrangement is hard to predict, as it is dependent upon both the deal they give you and your home appreciation. It is essential that you work out the numbers for different scenarios once they tell you what the deal they are giving you actually is.
However, if they are taking 17.5% and 70% of your future equity, that is a big chunk of change. In contrast, with most standard home equity loan products, you can pay them back without a penalty with a rather low interest rate.
What are some things that potential customers are reporting about Unison?
One review reported that the contract was 78 pages long, and that the appraisal seemed far below what the home was worth.
Another reviewer reported that they did a soft pull on their credit score when they had only entered their address and name, without their explicit permission. Unison responded that they require a prospective customer to check a box authorizing Unison to pull their credit, and give a link to this clause “By using the web site at www.unison.com including any subdomain thereof, and submitting an application or a prequalification form, and continuing with the application process, you agree that you are authorizing Unison to obtain consumer reports and related information about you from one or more consumer reporting agencies, such as TransUnion, Experian, and Equifax.”
What you should do before considering Unison?
- Get a copy of their full agreement before you spend any money with them or proceed with the process.
- Have a real estate lawyer review these documents and make sure you know your rights as it pertains to selling, refinancing, renting out, and making improvements on your home.
- Understand thoroughly what your home is actually worth. Don’t just rely on their appraisal. I would recommend getting an independent appraisal. If they are discounting the value of your property from the start, that means you owe them an artificially inflated amount later!
- If you still want to proceed, when they make you your offer that outlines exactly what amount of money they are giving you and what the terms are (what percentage of your future equity they are entitled to), that you thoroughly understand 1) whether they are discounting your current home value and by how much (as that will give a false rise in equity, a portion of which they can claim later on, and 2) work out the financial scenario, as to how much you will owe if your home “appreciates” by certain percentages. For example, if your home is worth X in 3 years, how much will you owe, according to the agreement. What about in 5 years? 10 years?
- I would also recommend that after you’ve run the numbers on what you’ll owe that you think hard about whether you plan to pay Unison back, and whether the chunk of money they will take in any scenario is worth the amount you will get initially.
Equity sharing products like Unison have complicated rules. Because you won’t know the actual cost to you until the future, it makes a cost/benefit analysis almost impossible. I don’t know about you, but when I buy a product, I like to know the cost/benefit analysis.
If you intend to pay them back, you might think twice before you go with this product. If you can’t know how much you will owe, how can you know for sure that you can pay it back?