Mortgage

Should I Get a Unison Loan Against My House?

Written by Steve Rhode

Question:

Dear Steve,

I desperately need to remodel 2 bathrooms and my kitchen. have had leaks and there is damage that needs to be repaired. It can only be done with remodeling.

I received an ad for Unison, a company that you don’t pay back or until you sell or a specified number of years. Is this company a good one? I had never heard of a loan like this. if not a company I should deal with, could you recommend a similar company?

Diana

Answer:

Dear Diana,

I hadn’t heard about Unison before so I visited their website. I noticed they have a waitlist page on their site so I’m not sure they are currently accepting applications.

But the company, Real Estate Equity Exchange, Inc., does a good job of explaining what they are selling.

They give homeowners money against the equity in the home. The funds don’t need to be repaid right away. But there are exceptions and a time limit.

If you dig a little on the Unison website they lay out the details.

The option contract approach is not like a typical loan. Unison is giving you money now for a percentage of future equity. There are also fees with this arrangement as well. “There is a one-time transaction fee equaling 3.9% of the cash proceeds received from Unison at your HomeOwner Agreement closing. This fee covers all procesing and third-party costs from appraisal and home inspection to titles, state taxes, and settlement costs.” – Source

The details of how the option contract works might just be above what most people expect and that could be a surprise.

In a typical loan you borrow money and have to repay the loan plus interest over a period of time. With the Unison arrangement, you are getting a small amount of cash now and giving up a large percentage of future equity in your home.

I don’t think there is anything shady about the Unison arrangement but I do think it is not typical and before entering the agreement it would not hurt to make sure you understand how this all works by talking to a banker, real estate agent, or real estate attorney. I’m sure Unison would agree that an educated consumer is their best customer. It will help to eliminate disagreements and unhappiness later.

The money Unison hands you today does not need to be repaid immediately. They say, “You decide when the option contract ends. Unison cannot exercise our option until you make the decision to buy us out early, sell your home, reach the 30 year max term, or if you materially default on your mortgage.”

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The issue here is if you have expenses you need to pay today, but can’t afford a loan or loan payment, then are you living so close to the financial edge that you can’t afford the current home? It’s something to consider.

Since you have maintenance issues and are looking to enter into the Unison arrangement you might want to talk to them about the following provision:

“Prior to signing an Agreement with Unison, we typically require a home inspection. While many inspections don’t reveal anything new (maybe a lost sock?), they sometimes uncover defects or conditions that can affect the property value if not addressed. For example, an inspection might reveal significant rot in the framing under the home’s main living area. Issue like this may worsen over time, thus negatively impacting the property’s future value and desirability.

If a significant issue(s) is found during the inspection, Unison may make note of it in a Deferred Maintenance Addendum. Ideally, the homeowner will arrange for the necessary repairs to be made. However, if the homeowner doesn’t, Unison reserves the right to treat the issue as a Deferred Maintenance Adjustment scenario in the future. Note: You will always be notified if this Addendum is part of your original Agreement.”

As part of your review into what might the best approach for you, it would be wise to talk to a local mortgage broker, a credit union, or your bank about what they might be able to do to help with the remodel costs instead of giving up a larger percentage of future home equity.

After weighing all of your options you can then make a well-educated decision about what is right for you.

Please come back and post an update in the comments below and let me know what you decide to do.




About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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