Shared Appreciation Note vs. FHA Mortgage?

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I am currently in the process of getting a mortgage. I need advice on the benefits and disadvantages of the following two mortgage types.

Standard FHA loan – using this loan, my pre-qualified amount will only allow me to purchase a not so nice home in a less than stellar area. However, any and all appreciation in the home will be mine.

Shared Appreciation Second Mortgage – using this City funded program, the City will pay up to 60,000 over my FHA approval amount to get me into a nicer home in a good area. Using this option my down payment is minimal.

However, the Shared Appreciation Note has a catch. When I sell or refinance the home the City loan becomes payable, as well as 20% of any appreciation the home has gained.

So at this point I can either pay more upfront to get into the cheaper home, or I can pay more down the line using the City program to get into a much nicer home.

Any thoughts or suggestions?
The Shared Note has no time line. There is no minimum time one must remain in the home, and the second mortgage matures at the same rate as the first. In addition, should I do any work on the home, the cost of the work and the an appraisal value the added worth it gives the home will be taken out of the home appreciation prior to the City program factoring their 20%.

For example: if I buy a home for 150, using 20k from the City program, & after putting 10k worth of work into the kitchen, the home appraises for an addition 30k at 180k. If when I sell the home it goes for 250K, the home would have appreciated 70k since the original mortgage. Out of that, 30k is due to wortk I put in and as such is mine. From the remaining 40k, the City program would get its initial 20k back plus the 20% = Total of $ 28,000.

1 Comment
  1. Reply
    February 14, 2011 at 6:54 am

    with out knowing all the terms then we have no idea. Some of these appreciation notes are for a much longer time than a normal note and the other thing is they have a time frame in some of them where you cannot for XX =years refi or even sell. Standard FHA always works but be sure what you are signing as trying to get out of a city note down the road can be very hard to do
    It sounds like you have throughly investigated the program but just by making some upgrades may not get you as much added value in this economy so spend that money wisely if you go with the city loan

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