Advice needed on 2 loan options

[Sandy Hu]

Hello,

I need advice on 2 loan options when buying a duplex in southern California ranging .9m-1.3m.

1. 10%-15% down with 30 year fix of 4.75% interest rate. It will require PMI
2. I put down 10%-15%, and Unison matches my downpayment, which will bring my total down payment to 20%-40%. Then I took a 30 year fix with 4.75% without PMI. For the money from Unison, I pay no interest and no monthly payment. However, they'll get a 20-30% cut of my net proceeds when selling the property.

Which loan option would you go and why?

[Kevin Fox]

Originally posted by @Sandy Hu:

@Kevin Fox

They see it more as an investment than a loan. They are expecting to take a ride when the value goes up. It makes sense in the long run cuz in big picture, property value always goes up. 

I understand the premise of taking equity  rather than issuing debt, but doing so without adequate controls/safeguards is absolutely crazy to me.

 Again, I am not familiar with the program and you could totally be right. However, there are several issues I see with that business model that make me question whether you’ve been given a proper explanation of the program.

For one - if their return is solely dependent on the NET PROCEEDS from the sale, they HAVE  to care about your refinancing decisions.

Otherwise, what would stop me from pulling cash out right before I go to sell in order to lower the net proceeds?

Also - average property values have always gone up over the long run, but that is not the same as property values always going up.

In the short run, the market experiences down cycles.  What happens if circumstances require you to sell during that downcycle?

 Keep in mind, I am in no way saying that it isn’t a viable option. Just that I would be sure there isn’t any language in the agreement that you’re overlooking/misunderstanding.