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A shared appreciation mortgage is a type of loan for which the lender offers a lower interest rate than on a conventional mortgage as compensation for a share of the future appreciated value of the property. The exact amount of the shared appreciation is determined by the lender. Since the interest rate is lower than normal and the property may not appreciate at all in the future, the lender is taking a risk by participating in a shared appreciation mortgage. If you find a lender willing to grant you this type of mortgage loan, you should seek legal counsel before agreeing to the terms due to the complicated tax laws that are involved in this type of transaction.
Documents You Need
The following are some items and kinds of information to gather for your lender before you apply for the mortgage:
- Purchase information
- Desired loan term and payment
- Two years of tax returns
- Financial statement
Once you have compiled all of your information, you can begin to search for a lender that will offer you a shared appreciation loan.
Step 1--Find a Lender Willing to Give You a Shared Appreciation Mortgage
You may not be able to find a lender right away due to the complex nature of your loan request. Ask a lender who refuses to make a shared appreciation mortgage if they know of any lenders in your area that will provide this type of loan structure.
Once you find a lender willing to give you a shared appreciation mortgage, discuss the terms of the loan and see if they have a favorable offer. Make sure you clarify that you will not be required to pay any shared appreciation if you sell the property for a loss before the full repayment date arrives. Pick up the mortgage loan application and take it home with you to complete.
Step 2--Contact a Tax Attorney
Discuss the terms of your proposed mortgage loan with a tax attorney to have her review the structure. If she is of the opinion that the loan is reasonable, you can request that she be present at closing. A tax attorney will, of course, charge a fee for her services, so be prepared to pay this amount out of pocket.
Step 3--Apply for the Loan
Now that the attorney has approved of your loan, complete the mortgage application and return it to your lender along with the supporting documents you prepared in advance. Ask the lender how long it will take for you to receive an answer on your request.
If you are approved, set a time for the loan closing and ask your attorney to be present if you feel it is necessary.
Step 4--Close on the Loan
Make sure the loan terms are what you agreed to with your lender. Discuss the shared appreciation percentage and confirm what happens if you sell the property for a profit or at a loss. Have your attorney look at the loan documents, and if everything is order, you will be able to complete the purchase once the lender issues the loan proceeds.
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