Monday, February 6, 2017

Silent Second Mortgage

Going to take a slightly different approach to this week’s Friday Market Update, and tell you about a Silent Second Program that isn’t just for first time home buyers – Unison Home Buyer.  Think of Unison Silent Seconds just as you would gift funds…so long as the borrower has at least 10% down, Unison will match their 10% allowing buyers to get out of monthly mortgage insurance and lower their overall P&I payment, therefore increasing the purchase price ceiling for those buyers.  

What does Unison get in return?  

When the buyer decides to sell the home in the future, Unison will take a percentage of the Profit of that sale – ie. If the buyer buys their home for $500,000 and decides to sell 5 years later for $600,000, Unison will take a percentage of the $100,000 profit.  That said, if the buyer sells their home at a loss, Unison will share in the percentage of the loss as well.  Unison is in it for the long haul, and betting real estate across the nation will continue to increase in value over time.  Unison down payment assistance has NO monthly payments, NOR do their funds accrue interest.  They ONLY share in the profit or loss…and for their sake, hoping for more profits than losses.

Ok, as a lender we get pitched new products all the time – many of which I don’t even share with you guys because the pros don’t necessarily outweigh the cons, and truth be told, when I first heard about Unison, I wasn’t crazy excited about this one either.  However, as a number’s guy, I had an epiphany, and here’s why I’m SO excited about this one. 

On one hand, Unison’s cost for their funds is between 17.5% and 35% of whatever a buyer’s profit may be.  To me, that seemed too expensive.  Going back to our initial example, that would mean if a buyer bought a house for $500,000 and sold 5 years later for $600,000, that buyer would owe Unison $35,000 + the initial principal lent from Unison of $50,000 (total of $85,000).  If that buyer saved $600 per month over 5 years, that means the buyer paid $85,000 to save $50,000 upfront + $36,000 = $86,000 … essentially a net zero.  So why would I even take the time to educate people on this (outside of those scenarios where saving $600 per month is the difference between qualified and not qualified).  Here was the kicker for me:  Most buyers who are purchasing above $400,000 are dipping into their 401K’s and/or brokerage accounts.  What if, instead of putting $100,000 down on a $500,000 home to get out of mortgage insurance, that buyer only put $50,000 down, took out a Unison Second, and left the other $50,000 in their 401K?  

Furthermore, what if that buyer ALSO directed the $600 per month they were saving due to Unison over to their 401K as well?  Check this out.  This literally blew my mind.  If a buyer did this, and they earned an average of 7% compounded annually on their 401K (Per Forbes, the S&P 500 has an annualized return of over 10% over the last 90 years), that buyer would pay overall $85,000 to Unison on one hand, but their money would be worth $113,086.68 on the other!  That’s a net benefit to the buyer of $28,086.68.  Moreover, that’s just for a 5 year turn around.  If instead of 5 years we were using a 10 year timeline in this scenario, that buyer’s money would be worth $201,568.97!!!  A net benefit to the buyer of $79,568.97!!! 
Happy Investing!

Today's blog courtesy of Kyle Bergquist, Guild Mortgage, Cell:  425-478-0961
Licensed Loan Originator NMLS - 918621
Guild Mortgage Company NMLS - 3274
Equal Housing Lender
The information provided herein has been prepared by a third party company and has been distributed for education purposes only.  Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

Monthly savings for qualified borrowers will vary based upon a variety of factors including, but not limited to loan amount, existing interest rate, and the rates the customer qualifies for.

None of the interest rates in this history represent interest rates that Guild Mortgage has offered or is currently offering. Rather, they are for informational purposes only and reflect historical interest rates that were available in the marketplace at some point during the period to which they relate. For current interest rates and annual percentage rates that Guild offers, contact Guild.

The positions, strategies, or opinions of the author do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates.

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