Page Reviewed / Updated - Jun. 2018
A Unison HomeOwner Agreement, previously called a REX Agreement, is a contract with an organization formerly called FirstREX. (In December of 2016, FirstREX changed its name to Unison Home Ownership Investors, or for short, Unison.) A Unison HomeOwner Agreement enables a homeowner to convert a portion of their home equity into cash. It provides the homeowner with a lump sum of cash today, in exchange for a percentage of the change in the home's value (17.5% to 70%) in the future. This means there is no interest charge or monthly payments to be made.
As an example, a homeowner with a home valued at $500,000 could receive $50,000 in a lump sum in exchange for a 40% share of the future change in the value of the property. So, if they sell their home in ten years for $550,000 the home will have appreciated by $50,000. At the time of sale, the homeowner will pay to Unison, the original $50,000 and 40% of the appreciation of the home ($20,000) for a total payment of $70,000.
A Unison Homeowner Agreement allows Unison to share in a home's appreciation, as well as share the risk if the home depreciates. If the same $500,000 home depreciates by $50,000 and is sold for $450,000 then the homeowner pays to Unison the original $50,000 MINUS 40% of the home depreciation. In this case, the home depreciated by $50,000, so $50,000 X 40% = $20,000. The homeowner pays Unison $50,000 - $20,000 which equals a total payment of $30,000.
Unison and the homeowner agree on the home’s value using an independent, licensed appraiser. The homeowner then decides how much cash they need or want, which will determine the percentage of the future change in value they will share with Unison. The cash received by the homeowner may be used for any purpose, such as the purchase of long-term care insurance, re-modeling the home to make it accessible for the elderly, or paying for a home care worker.
The maximum term of the Unison HomeOwner Agreement is 30 years. However, the agreement typically ends when the homeowner sells the property. The Unison HomeOwner Agreement is intended to be a long-tem agreement. Therefore, if the homeowner sells the property during the first three years, and there is a loss due to fair market conditions, Unison will not share in this loss.
After three years, one can request what is called a “Special Termination” and end the agreement without the house being sold. When one requests a special termination, a third-party appraisal is done to determine the current value of the home. At this time, the original amount received must be paid back. Any profit Unison would have received if the house were sold at the time of the appraisal must also be paid to Unison. In this situation, Unison will not share in any loss due to a decrease in the home’s value.
Similar to a reverse mortgage, individuals are required to live in their home during the entire term of the Unison HomeOwner Agreement. Should care needs require an individual to move from their home for more than 180 consecutive days, and it is clear they will not be returning, then the Unison HomeOwner Agreement comes due. If this occurs during the first three years of the agreement, and the home has lost value due to fair market conditions, Unison will not share in the loss.
For this reason, a Unison HomeOwner Agreement should be a potential source of funds for long-term care only for seniors where at least one of the spouses has no intention of moving for at least three years. To further clarify, should a single senior or both spouses of a couple require assisted living or skilled nursing in the near future, Unison HomeOwner Agreements are not a good option.
As with reverse mortgages, the concern that Unison can force a homeowner to sell is not justified. Unison does not go on title and is not a co-owner. Homeowners are required to live in and maintain the home in good condition. If the home is not maintained and there is a significant decrease in market value because of this, Unison will not share in the loss. Instead, a deferred maintenance adjustment will be applied.
Homeowners must also stay current on their mortgage, insurance, and tax payments. If an issue does occur, the homeowner can ask for a special termination after three years, keep the home, get an appraisal, and pay the amount borrowed, and any profit that would be owed Unison if the house were sold.
Homeowners can make home improvements, such as making a home more accessible for the elderly, without Unison unfairly benefiting from those improvements. Homeowners simply notify Unison of the improvement and apply for a “Remodeling Adjustment,” and Unison will not share in the value of that improvement in the appraisal when the home is sold. Make note, the Remodeling Adjustment is not available until after the HomeOwner Agreement has been in effect for three years.
Although homeowners do not make monthly payments to Unison, applicants are required to have good credit. Their credit is evaluated to ensure they are in a position to continue to make any mortgage payments should they have an outstanding home loan. Debt to income ratio is also considered.
Homeowners must be over the age of 18 to qualify for a Unison HomeOwner Agreement. There is no maximum age. Disability or health status is not considered a factor. However, because the home must be owner-occupied and there are early termination fees, persons whose health may require them to move from the home within three years are not good candidates for this source of funds. Marital, family, and veteran discharge statuses are not factors in eligibility.
Typically there is no minimum appraised value of the home required in order to be eligible for a Unison HomeOwner Agreement. Five million is the maximum value allowed. An individual must have at least 30% equity in their home or 70% Loan to Value (LTV) ratio. For example, say you have a mortgage for $150,000 and your home is worth $200,000. This means you have $50,000 in equity in your home and have a 75% LTV. Commercial properties, condominiums (as part of large complexes), and co-ops are not eligible properties. The condition of the home is also a consideration factor.
As of June 2018, HomeOwners Agreements were available in Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Virginia, Washington, and Washington D.C.
Unison HomeOwner Agreement benefits are paid out in a lump sum at the time of entering the agreement. There are no restrictions on how the proceeds can be used. Persons entering a Unison HomeOwner Agreement receive up to 20% of their home’s value in cash. This amount varies with the percentage of the home’s future appreciation an eligible applicant is willing to share. The maximum benefit amount is approximately $500,000.
The costs associated with a Unison HomeOwner Agreement should be considered at three levels.
1) There is the cost associated with giving up a percentage of the home’s appreciation. This can be difficult to determine because one cannot predict the future value of their home.
2) While a Unison HomeOwner Agreement is not considered a loan, there are closing costs. There is a transaction fee equal to 3.9% of the lump sum payment, which includes the home appraisal and inspection, state taxes, titles, and settlement costs.
Interested individuals can learn more and apply on the Unison website. One can pre-qualify in less than one minute, and it can take as few as 15 days to close on a Unison HomeOwner Agreement.