Participation Mortgage: An Explanation
Author:
Miranda CraceFeb 23, 2023
•3-minute read
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, multiple borrowers or a combination of borrowers and lenders.
Participation mortgages are often used in large commercial real estate transactions, which frequently require multiple lenders to spread the risk. Commercial buildings typically have much higher price points than residential ones, meaning that investors might only be able to afford these properties if they pool their money together.