Shared Appreciation Mortgage Definition and Lender Options

Imagine buying your dream home without the burden of high monthly mortgage payments. However, there’s a catch—you’ll have to share a portion of your home’s appreciation with the lender when you sell or refinance. This unique financing option is a shared appreciation mortgage (SAM).

While SAMs offer attractive benefits like lower interest rates or monthly payments, they also come with trade-offs to carefully consider. Below, we’ll help you determine if a SAM is right for you. 

Program/lender	What to know
California Dream For All	Borrow up to 20% (max. $150,000) of purchase price; repay loan + share of appreciation
San Francisco’s Down Payment Assistance Loan Program	Borrow up to $500,000; repay loan + share of appreciation
Arlington Moderate-Income Purchase Assistance Program	Borrow up to 25% of the home price; repay loan + share of appreciation
Boulder House to Homeownership Program	Borrow up to $100,000; repay loan + share of appreciation

What is a shared appreciation mortgage?

A shared appreciation mortgage, or SAM, is a type of mortgage where you agree to share a portion of your home’s future appreciation (increase in value) with the lender. In exchange, you get better loan terms—like down payment assistance or a lower interest rate or monthly payment now. 

SAMs are also called shared equity mortgages or partnership loans.

Unlike with a traditional mortgage, you’ll repay the original loan amount plus a percentage of appreciation when you sell your home, refinance, or reach the end of the loan term. 

This may save you money in the short term, but if your home value skyrockets, you could end up paying more than you would with a traditional mortgage. 

Shared appreciation mortgages aren’t as popular as other types of mortgages. Still, they may be appealing to these types of borrowers: 

• You’re a first-time or low-income homebuyer with a limited down payment. You need just a little bit of help to be able to afford the place you love.
• You’re underwater on your mortgage and need a loan modification to stay afloat.

Tip

A shared appreciation mortgage is different from a home equity sharing agreement. A home equity sharing agreement is more like a home equity loan because you take it out after you purchase your home and already have some equity. 

How does a shared ownership mortgage work?

Many SAMs are offered through affordable homebuying programs or as a type of loan modification for homeowners struggling to make payments.

Some governments open applications at a specific time every year and hold a lottery, so this type of financing can be less flexible. Planning ahead and understanding what’s necessary to apply are important.

Here’s an example of a SAM loan: 

Let’s say you want to purchase a $500,000 home but can’t afford the down payment. A SAM might offer you a lower down payment and interest rate in exchange for sharing a percentage of your home’s future appreciation with the lender.

For instance, you might agree to a SAM with a 20% shared appreciation clause. If you sell your home for $550,000 after five years, it will have appreciated by $50,000 ($550,000 – $500,000). 

With the SAM, you’ll need to repay the original loan amount plus 20% of the $50,000 appreciation, which is $10,000. (This doesn’t account for closing costs, which may be paid in part by the lender.)

If your home doesn’t appreciate or decreases in value, you may not owe the lender any additional money beyond the original loan amount.

Tip

With a traditional mortgage, you keep all of the appreciation (minus any outstanding mortgage balance) when you sell your home. However, you’ll typically have higher upfront costs and monthly payments than a SAM.

Shared appreciation mortgage lenders

Unfortunately, shared appreciation mortgage lenders are few and far between. Many traditional and online lenders don’t offer them. However, some government agencies have shared appreciation loan programs for first-time or low-income homebuyers: 

California Dream For All 

The California Dream For All Shared Appreciation Loan is a down payment assistance program for first-time homebuyers in California. It offers up to 20% of the purchase price (a maximum of $150,000) for down payment or closing costs. The program issues vouchers through a randomized drawing—not on a first-come, first-served basis.

When you sell or transfer your home, you repay the original down payment loan plus a share of the appreciation in home’s value.

San Francisco’s Down Payment Assistance Loan Program (DALP)

San Francisco’s Down Payment Assistance Loan Program (DALP) helps low- and middle-income first-time homebuyers with up to $500,000 for a down payment on a primary residence in the city.

It’s a silent second loan with no monthly payments. When you sell or transfer the property, you repay the principal plus a share of the appreciation.

Arlington’s Moderate-Income Purchase Assistance Program (MIPAP)

Arlington County’s Moderate-Income Purchase Assistance Program (MIPAP) helps first-time homebuyers with down payments and closing costs. It provides a deferred-payment, no-interest loan for up to 25% of the home price. When you sell or refinance, you repay the loan plus up to 25% of the home’s appreciation.

Boulder’s House to Homeownership (H20) program

The House to Homeownership (H2O) Program in Boulder, Colorado, helps first-time homebuyers purchase homes within the city. The program offers a second loan of up to $100,000 with no interest or payments for 30 years.

When you sell or transfer the title, you repay the loan plus a share of the home’s appreciation.

Pros and cons of a SAM loan

Pros

• Lower upfront costs

  Shared appreciation mortgages offered through affordable home-buying programs can make homeownership more accessible to lower-income buyers by reducing upfront costs and down payment requirements.

• Potential for a smaller mortgage

  Sometimes, using a SAM can reduce the size of your primary mortgage and make it easier to qualify for financing.

• Can help struggling homeowners avoid foreclosure

  A SAM loan modification can help financially stressed homeowners stay in their homes by providing more affordable payment options.

• Some SAMs have no interest or monthly payments

Cons

• Shared appreciation

  You must repay the SAM loan amount plus a portion of the property’s appreciation when you sell, refinance, or reach the end of the loan term

• Eligibility restrictions

  Affordable home-buying programs that offer SAMs often have strict eligibility criteria, such as income limits, primary residence requirements, and strict application deadlines that can disqualify some homebuyers.

• Potential for higher long-term costs

  Although SAMs can provide short-term relief, the shared appreciation component means you could be making a hefty payment at the end of the loan term.

• Missed opportunity for better terms

  If you shop around, you might be able to find a traditional mortgage with similar benefits without having to give up a portion of your home’s appreciation.

Should you take out a shared appreciation loan?

Consider these scenarios if you’re on the fence about whether a shared appreciation mortgage is for you: 

If …	Then …
You’re a first-time homebuyer with limited savings for down payment	A SAM from an affordable home-buying program could give you the extra support you need to become a homeowner.
You’re facing financial hardship and are at risk of foreclosure	A SAM loan modification could reduce your monthly payments or interest rate.
You’re uncomfortable sharing your home’s appreciation with a lender	A traditional mortgage may be a better fit because you’ll get to keep all appreciation.
You have a stable income and can afford a traditional mortgage	You may prefer to build equity without sharing appreciation.

Shared appreciation mortgages are particularly helpful if you’re a first-time homebuyer with limited savings or need a loan modification to stay afloat. But there are also other ways to make homeownership more affordable. 

If you have time to improve your financial situation before applying for a mortgage, consider boosting your credit score, saving up for a larger down payment, comparing lenders, or paying points to lower your interest rate.

Ask the expert

Michael Menninger

CFP®

If the lender gives you 20% down, that saves on private mortgage insurance in your monthly mortgage payment. That savings and the opportunity to invest it could result in greater than the percentage of appreciation. It could be that the risk of a shared appreciation mortgage is simply “lost opportunity” in the appreciation.

Alternatives to a shared equity mortgage

Considering a shared appreciation mortgage? It’s essential to weigh this against other financial products. Let’s explore how several alternatives compare, offering you a broader perspective on making an informed decision.

Home co-investment program

A home co-investment program provides homebuyers with funds to purchase property in exchange for a stake in the home’s future value. Unlike a shared appreciation mortgage, which involves repaying the lender with a portion of the home’s appreciated value, a home co-investment involves sharing ownership. 

This alternative allows for lower monthly mortgage payments, but co-investors claim a share of any profit when the home is sold. The benefit is immediate access to additional funds, but the drawback is less earned in the home’s equity gains.

Government programs

Government programs, such as FHA loans or VA loans, are another viable option. These programs often feature lower down payments and favorable interest rates compared to standard loans. 

Unlike shared appreciation mortgages, government programs do not require sharing future home equity. However, they come with strict eligibility requirements and sometimes higher insurance premiums. The main advantage is lower upfront costs, but you may face limited property choices and potential long-term expenses.

Rent-to-own agreement

A rent-to-own agreement allows you to rent a home with the option to purchase it later. This differs from a shared appreciation mortgage, in which you immediately own the property but agree to share future appreciation. 

With rent-to-own, some of your rent payments typically apply toward the purchase price, making saving for a down payment easier. However, if you decide not to buy, you forfeit those contributions. The primary benefit is reduced financial commitment and flexible purchase options, but the drawback is the potential investment loss if the purchase doesn’t proceed.

FAQ

Can you get out of a shared appreciation mortgage?

Yes, you can get out of a shared appreciation mortgage, but it typically involves repaying the loan and any agreed-upon share of the property’s appreciation. This can be done by selling the property, refinancing the mortgage, or paying off the mortgage with other funds.

The specific terms and conditions for exiting the mortgage will depend on the agreement with the lender.

What percentage of appreciation do you have to pay in a shared appreciation mortgage?

The percentage of appreciation you have to pay in a shared appreciation mortgage varies depending on the terms of the agreement with the lender.

Generally, it can range from 25% to 75% of the increase in the property’s value. It’s important to carefully review the terms of your mortgage agreement to understand your obligations.

Is a shared appreciation mortgage the same as equity release?

A shared appreciation mortgage and equity release are not exactly the same, but they can have similar outcomes. A shared appreciation mortgage involves borrowing money and agreeing to share a percentage of the future appreciation of the property with the lender.

Equity release, on the other hand, is a broader term that typically refers to various financial products that allow homeowners to access the equity in their homes, often in the form of a lump sum or regular payments, without having to sell the property.

Equity release products include lifetime mortgages and home reversion plans, among others, and can sometimes include shared appreciation as a feature.

Recap of shared appreciation mortgage programs

Program/lender	What to know
California Dream For All	Borrow up to 20% (max. $150,000) of purchase price; repay loan + share of appreciation
San Francisco’s Down Payment Assistance Loan Program	Borrow up to $500,000; repay loan + share of appreciation
Arlington Moderate-Income Purchase Assistance Program	Borrow up to 25% of the home price; repay loan + share of appreciation
Boulder House to Homeownership Program	Borrow up to $100,000; repay loan + share of appreciation