Business partners signing contracts.

Participation Mortgage: An Explanation

February 23, 2023 3-minute read

Author: Miranda Crace


A participation mortgage refers to a home loan that allows multiple people to team up and share in the real estate investment profits. By splitting the proceeds, they’re also reducing their risk exposure.

While Rocket Mortgage® does not offer participation mortgages, we understand the importance of educating our clients. Let’s look at how participation mortgages work and how they can benefit both borrowers and lenders.

What Is A Participation Mortgage?

A participation mortgage, also known as a participating mortgage, is a type of loan that allows two or more people to share the proceeds from a piece of property. The lender or mortgagee has the legal right to divide the proceeds from the borrower or mortgagor.

A participating mortgage is also sometimes referred to as participating financing. This agreement can include partnerships between lenders, borrowers and lenders, or among multiple borrowers.

Participation mortgages are often used in large commercial real estate transactions, which frequently require multiple lenders to spread the risk.

See What You Qualify For


Type of Loan

Home Description

Property Use

Your Credit Profile

When do you plan to purchase your home?

Do you have a second mortgage?

Are you a first time homebuyer?

Your email address () will be your Username.
Contains 1 Uppercase Letter
Contains 1 Lowercase Letter
Contains 1 Number
At Least 8 Characters Long
Go Back


By submitting your contact information you agree to our Terms of Use and our Privacy Policy, which includes using arbitration to resolve claims related to the Telephone Consumer Protection Act.!

NMLS #3030
Rocket Mortgage Logo

Congratulations! Based on the information you have provided, you are eligible to continue your home loan process online with Rocket Mortgage.

If a sign-in page does not automatically pop up in a new tab, click here

Rocket Mortgage Logo

How Does A Participating Mortgage Loan Work?

A participation mortgage occurs when two or more parties share the risk of financing property and share in the proceeds from the rental or sale. These mortgages aren’t as commonplace as they used to be but are sometimes used to finance large real estate transactions.

Let’s look at how participation mortgages work and some of the costs involved.

Cost Of The Loan

  • Non-traditional lenders often issue participation mortgages. These lenders usually offer these mortgages at a reduced interest rate in exchange for a portion of the cash flow from the property and a portion of the resale revenues.
  • A participation mortgage splits the net operating income (NOI), which measures a property’s profitability before adding in financing or taxes.
  • A lender may receive a one-time payment after the owner sells the property and may also receive a percentage of the operating cash flow created by the property as long as it’s working.

Types Of Payments

There are various types of payments for a participation mortgage, and each type can be used in a slightly different way.

  • Repayment: In a participation mortgage, the repayment terms will vary depending on the lender and the terms of the agreement. Borrowers will often make either interest-only payments or pay a combination of interest and principal.
  • Interest Payment: Some participation mortgages come with interest-only payments, which means the monthly payments are often lower in the beginning.
  • Balloon Payment: Occasionally, participation mortgages come with a balloon payment at the end of the loan. This means borrowers will make low monthly payments over the life of the loan, then pay a large balloon payment at the end.

Participating Mortgage Used In Real Estate Investing

Participating mortgages are used in real estate investing. In particular, participation loans are commonly used in commercial real estate, which predicts the continuous rental income. The borrowers will share in the mortgage and split the proceeds generated from the rental income.

Entrepreneurs will often act as non-traditional lenders in participation loans. These are usually individuals who want to invest in real estate without having to maintain the properties directly.

Pros And Cons Of A Participation Mortgage

There are pros and cons to a participation mortgage, both to the borrower and the lender. Here are some of the biggest advantages and disadvantages to consider:


  • Lenders often charge a lower interest rate for participation mortgages.
  • Borrowers can take out a larger real estate loan than they might be able to qualify for on their own.
  • Multiple financial institutions are able to share in the profits.
  • It reduces the risk to the lender.
  • Financial institutions and investors can diversify their financial assets.


  • The larger the loan, the higher the risk of losing money.
  • Lenders will sometimes offer their riskier loans for participation, so you have to do your homework first.

The Bottom Line: Participation Mortgage Allows Multiple Parties To Share The Risks And Rewards Of Real Estate Development

A participation mortgage is beneficial both to the lender and borrower, but you’ll need to do your due diligence first. Watch for any red flags in your participation agreement, and make sure the cash flow is divided evenly among all borrowers.

Interested in learning about other ways you can finance real estate investments? Check out our learning center to understand the different loan types and to find one that might be right for you.

Neighborhood trends at your fingertips.

Check your local market.

Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years. Miranda is dedicated to advancing financial literacy and empowering individuals to achieve their financial and homeownership goals. She graduated from Wayne State University where she studied PR Writing, Film Production, and Film Editing. Her creative talents shine through her contributions to the popular video series "Home Lore" and "The Red Desk," which were nominated for the prestigious Shorty Awards. In her spare time, Miranda enjoys traveling, actively engages in the entrepreneurial community, and savors a perfectly brewed cup of coffee.