For decades, the only way for cash-strapped individuals to make a down payment on a home has been to take on risky amounts of additional debt. That daunting reality has resulted in a declining homeownership rate, especially among first-time buyers and millennials. In the last 10 years, the homeownership rate for Americans 35 and under decreased from 43 percent to 35 percent.

“As home prices and interest rates rise, the math of the monthly payment is rising more quickly than peoples’ incomes. In parts of the country today, even if you have two working people in the household it’s hard to afford an average-priced home,” said David Battany, executive vice president of capital markets at Guild Mortgage.

Flexible financing

Many Americans, however, are no longer content to sit on the sidelines when it comes to homeownership and are looking for better ways to finance the home they really want. Fortunately, San Francisco-based Unison Home Ownership Investors has created a new financial product category called “homeownership investment” that connects investors with Americans seeking financing without debt. The company offers two unique programs designed to address major consumer financial needs across the lifespan of a homeowner, from purchasing the first home to living in the last home. One program provides home buyers a portion of the down payment needed to purchase a home; the other allows current homeowners to tap into their home equity without interest or monthly payments.

Now, for the first time, the world’s largest asset class is an investable asset class, a scenario that benefits investors and consumers equally.

“If you think about it, these programs are not taking away from anybody. This is adding to the system overall. The investors need access to residential real estate. Consumers need access to this debt-free form of financing,” said Thomas Sponholtz, co-CEO and chairman of Unison.

The key to both these programs is partnership. In a homeownership investment, buyers receive up to half the cash required for their down payment from institutional investors, and investors earn a return by sharing in the change in value of the home — up or down — when the homeowner sells up to 30 years later. This partnership can double a buyer’s down payment cash, which can eliminate the need for costly mortgage insurance, lower the monthly mortgage payment by 15 to 20 percent and increase purchasing power by up to 100 percent. The agreement can be bought out after three years.

"If you’re putting every bit of your savings into your down payment, you’re not going to have financial flexibility in the short term or even the long term. The homebuyer program gives you financial flexibility and lowers your risk,” said Sponholtz.

Sensible investing

A similar arrangement opens up cash to existing homeowners. With a homeownership investment, homeowners receive a cash payment from investors, which can be used for up to 30 years without interest or payments. The cash can be used to remodel the home, pay school tuition, invest for retirement or any other purpose. Again, investors share in a portion of the change in the value of the home when it is sold.

"For a homeowner who does not want to increase their monthly payments in any way, shape or form, the homeowner program is a great alternative to a HELOC or a cash-out refinance,” said Jim Riccitelli, co-CEO of Unison.

Before the homeownership investment category was introduced, investors could only invest in residential real estate by buying a portfolio of homes and renting them out, a business model whose friction costs tend to make it unsustainable. Now, for the first time, the world’s largest asset class is an investable asset class, a scenario that benefits investors and consumers equally.

“It’s something that in many areas can be the way of the future,” Battany said.