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B5-5.1-03, Community Seconds: Shared Appreciation Transactions (11/01/2023)

This topic contains information on shared appreciation transactions, including:


Shared appreciation programs are a type of Community Seconds offering that create affordability for eligible borrowers by providing down payment, closing cost assistance, and/or funding for renovations to the property, including energy-related improvements, in exchange for repayment of an interest-free loan and a share in any future appreciation to the property. The program provider receives the original amount advanced and a predetermined percentage of any appreciation in value upon the occurrence of specified events defined in the program's legal documentation. Events may include the subsequent sale (or other transfer) of the home and be dependent on the availability of funds.

Appreciation in value is defined as the positive difference between the original sales price of the property and the subsequent value of the property determined in accordance with the shared appreciation program's legal documents (which may but is not required to take into account amounts paid by the borrower to improve the property with the knowledge or consent of the shared appreciation program).

Note: This topic pertains only to shared appreciation loans. For information on shared equity transactions, see Section B5-5.3, Shared Equity Transactions.

Provider Requirements

The provider of a shared appreciation loan must

  • be an eligible Community Seconds provider,
  • be responsible for the administration and oversight of the program, and
  • advance its own funds (or those of other parties for whom it is administering the program, so long as each such party is an eligible Community Seconds provider) to the borrower.

Note: The lender of the first mortgage may advance the funds for the shared appreciation loan if within six months of loan closing the lender assigns the loan to a housing finance agency as defined in 23 C.F.R. §266.5. In this scenario, the housing finance agency will be considered an acceptable Community Seconds shared appreciation provider.


Shared appreciation loans are only eligible as Community Seconds loans. Fannie Mae will purchase first mortgages that are originated with this type of subordinate financing, but the first mortgage must be a purchase or limited cash-out refinance transaction and otherwise meet the requirements of this Guide.

The following table provides additional eligibility requirements for shared appreciation loans.

  The shared appreciation loan must comply with the requirements in  B5-5.1-01, Community Seconds LoansB5-5.1-01, Community Seconds Loans  and  B5-5.1-02, Community Seconds Loan EligibilityB5-5.1-02, Community Seconds Loan Eligibility.
  Interest (deferred or otherwise) is not permitted, other than default interest on overdue principal or a share in appreciation.
  Expenses or fees must not be imposed on the borrower after loan origination, except in cases of default or in connection with borrower-initiated transactions, as defined in the program's legal documentation.
  After completion of the obligations to the shared appreciation provider (or its assignee), including payment of any shared appreciation in value, the borrower must not have any further obligation to the shared appreciation provider or any assignee.

Repayment Distribution Requirements

The following table describes the requirements related to repayment of a shared appreciation loan.

Criteria Requirements
Repayment of the Community Seconds loan and payout of appreciation

The shared appreciation loan and any share in appreciation must only be payable in connection with one or more of the following events as specified in the shared appreciation program's legal documentation:

  • a specific date, which must not be earlier than the scheduled maturity date of the first mortgage granted in connection with the purchase of the property;
  • repayment in full of the first mortgage (except when the shared appreciation loan is being resubordinated in connection with a refinance;
  • acceleration of the first mortgage in accordance with its terms (for purchase mortgages only, this is limited to acceleration after the conclusion of loss mitigation or other measures to cure a delinquency); or
  • an unauthorized transfer, or unauthorized change in occupancy status, of the property, or an event of default relating to the failure to maintain collateral (after notice and an opportunity to cure). 

In addition, the program's legal documents must allow the borrower an option to prepay the loan in its entirety at any time and to pay all other amounts due to the provider, including any shared appreciation.

If the shared appreciation loan becomes due and payable, all amounts then due and payable to the first mortgagee must be paid first, followed by other entitled parties, such as the shared appreciation provider and the borrower.

Basis for determining the amount of appreciation

In the program's legal documentation, the appreciation in value must be based on one of the following:

  • When the property is sold on the open market, the appreciation must be based on the actual sales price of the property.
  • In any other instance, the appreciation must be based on an appraisal from a state-licensed or state-certified appraiser obtained in accordance with the program's terms, or if explicitly indicated as permitted in the program's legal documents, a current value established by a third-party, commercial automated valuation model (AVM).

For limited cash-out refinances, appreciation in value may be based on any method included in the program's legal documentation.

Provider's share of appreciation

Except as permitted below, the provider's share of appreciation must not exceed the "Standard Percentage" which is derived by dividing the original shared appreciation loan amount by the original sales price.

For example, if the provider contributed a 10% down payment towards the purchase of a home, the provider cannot share in appreciation greater than 10% (the Standard Percentage) when the home is sold.


The provider's share of appreciation may be greater than the Standard Percentage in either of the two scenarios below:

1. The borrower must first recover the following (which will result in a reduction in the amount of appreciation) before the provider is able to share in appreciation:

  • any portion of the down payment that came from the borrower's own funds,
  • reasonable costs of selling the property (such as a sales commission),
  • the costs of any improvements made by the borrower to the property (provided they were allowed under the program's legal documentation and not otherwise taken into account in determining the amount of appreciation), and
  • the principal portion of all payments the borrower made on the first mortgage.

2. The provider may share in appreciation greater than the Standard Percentage if

  • in the first year following origination of the shared appreciation loan, the share does not initially exceed 75%, or
  • after the first year following origination of the shared appreciation loan, the share is reduced at least proportionally each year, so the share is equal to or less than the Standard Percentage no later than five years following origination of the shared appreciation loan.

For example, if the provider's share of appreciation is 70% in the first year, and the Standard Percentage is 10%, then the provider's share must decrease by at least 15% annually (70% minus 10%, divided by 4), so that in the second, third, and fourth years, the provider's share of appreciation must not exceed 55%, 40%, and 25%, respectively.

Delivery Requirements

Lenders must report SFC 176 when delivering a loan with shared appreciation.

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2023-10 November 01, 2023
Announcement SEL-2023-08 September 06, 2023
Announcement SEL-2023-04 May 03, 2023