How to Get a Shared Appreciation Mortgage
The shared appreciation mortgage (SAM) is an arrangement between the borrower and lender that gives the lender or another party a percentage of the home’s future appreciation. SAMs are sometimes used between relatives or other investors when the buyer does not have a sufficient credit history or down payment.
- STEP 1: Contact the local bar association for recommendations on real estate lawyers who have done shared appreciation mortgages. Ask referred lawyers how many SAMs they have done. Because of the rarity of SAMs and their potential repercussions, getting an experienced lawyer is extremely important.
- STEP 2: Contact lenders in your area about SAMs and check what experience they have with SAMs. Choose a lender experience with SAMs.
- STEP 3: Ask your chosen lender what the time frame will be on the appreciation period.
- STEP 4: Ask the lender what percentage of the home’s appreciation it seeks.
- STEP 5: Establish how the appreciation will be determined – through an appraisal or sale? In either case, if you (the borrower) do not have the appreciation money to pay the lender at the time it is due, the lender may force a sale.
- STEP 6: Ask the lender what happens if the house does not appreciate in value or depreciates. Make sure the repercussions of a decrease in the value of the house are spelled out.
- STEP 7: Ask the lawyer if the lender’s terms are standard and what terms are reasonable for the type of SAM you are considering. This is where your lawyer’s experience in doing SAMs will be extremely helpful.
Tips & Warnings
- Most lenders on a SAM want from 30 to 50 percent of the appreciation. Be sure to set the figure in the contract.
- The lender in a SAM – whether it be an institution or an individual – reduces the interest rate on the mortgage in return for sharing in the appreciation. Spell out how much lower that rate will be and for how long.
- Be sure to have the appreciation period spelled out. While your payments may be based over a 30-year period, most lenders in a SAM want the appreciation period to be much shorter.
- Even if your SAM lender is a member of your family, get your own attorney to help and advise you on negotiating the terms of the SAM.
- If property values are falling, SAMs may not be available.