The value of your home would have increased by $200,000 if you bought it for $300,000 and sold it years later for $500,000. The lender might take 30% to 50% of that increase, or $60,000 to $100,000. You would keep the rest if you agreed to a shared appreciation mortgage.
Acronym: SAM loan
How a SAM Works
Lenders may offer shared appreciation deals as a means of loan modifications for people who might be struggling to stay current on their home loans. This method can make buying a home and meeting the monthly payments more affordable. It can also allow buyers to purchase higher-priced homes than they could have afforded on their own. Loan servicer Ocwen offered SAM programs as part of loan modifications in the years that came after the housing crisis. Ocwen would reduce the homeowner’s principal balance in exchange for 25% of the home’s increased value upon resale. The reduced balance would not have to be paid as long as the owner kept current on those payments for three years.
SAMs vs. Shared Equity Mortgages
The terms “shared appreciation” and “shared equity” are often used to refer to the same thing in the mortgage sector, but these two loan products are not the same. The investor or lender owns part of the property in a shared equity arrangement, or SEA. They might cover all or part of the down payment and closing costs, or they might put some other investment into the purchase of the home. They would then recoup their portion of equity when the home is later sold, regardless of whether the property has gone up or down in value. The firm Unison offers this sort of plan as well, under the name of “coinvesting.” Unison will help buyers put a 20% down payment on a home, according to its website. Both the buyer and the firm profit if the home value goes up over time. There are also public versions of a shared equity mortgage. Municipalities, community organizations, and nonprofits assist with the initial costs of owning a home. They might even offer lower mortgage rates for the buyer in exchange for an equity stake in the home in a type of homebuyer-assistance program. SAM loans account for just a “tiny fraction” of the total mortgage market in the U.S., according to an MIT study. IRS rules on taxing interest make it hard for lenders to offer SAMs in the U.S.
