Amy Fontinelle is a freelance writer, researcher and editor who brings a journalistic approach to personal finance content. Since 2004, she has worked with lenders, real estate agents, consultants, financial advisors, family offices, wealth managers.
Amy Fontinelle Personal Finance ExpertAmy Fontinelle is a freelance writer, researcher and editor who brings a journalistic approach to personal finance content. Since 2004, she has worked with lenders, real estate agents, consultants, financial advisors, family offices, wealth managers.
Written By Amy Fontinelle Personal Finance ExpertAmy Fontinelle is a freelance writer, researcher and editor who brings a journalistic approach to personal finance content. Since 2004, she has worked with lenders, real estate agents, consultants, financial advisors, family offices, wealth managers.
Amy Fontinelle Personal Finance ExpertAmy Fontinelle is a freelance writer, researcher and editor who brings a journalistic approach to personal finance content. Since 2004, she has worked with lenders, real estate agents, consultants, financial advisors, family offices, wealth managers.
Personal Finance Expert Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
| Loans & Mortgages Editor
Published: Feb 14, 2024, 12:51pm
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A home equity sharing agreement is a relatively new financing option that lets you borrow money against your future home equity. They can be a viable alternative to accessing your equity if you don’t qualify for other forms of financing.
A home equity sharing agreement differs from other home equity financing options, like home equity loans and home equity lines of credit (HELOCs), in that its value is tied to your future home equity as opposed to your current home equity. There are also no monthly payments or accrued interest since a home equity agreement is technically not a loan.
With a home equity sharing agreement, you’ll receive an equity advance in the form of a lump sum cash payment from an investment company. In exchange, you’ll give the investment company the right to a portion of your home’s future value.
You can exit a home equity sharing agreement at any time. Once the agreement ends, you’ll pay the investment company its share of equity—either by selling the home or buying out the company’s equity portion. You’ll also repay the equity advance you received at the beginning.
The maximum duration of a home equity agreement varies by company but typically ranges from 10 to 30 years.
The equity-sharing percentage is determined up front and will be stated in your contract. It’s based on your home’s value, your equity, your geographic location and your credit profile. Your home’s value is determined by an independent third-party appraiser. Some home equity sharing companies then adjust the appraised value to determine your home’s starting value.
The starting value is the basis of how much you can borrow. It also gives the investors downside protection against your home losing value (especially if they will share in that depreciation) or, if your home appreciates, a built-in boost at the end of the agreement.
After you sign the contract, the investor will place a lien on the property. If you have a mortgage, the investor will be in second lien position. This means that if you get foreclosed on, the mortgage company gets repaid first, then the home equity investor. You still own your home; the investor does not. You can sell anytime before your agreement ends.
Some companies only offer home equity agreements for single-family, owner-occupied primary residences. However, some companies accept second homes, vacation homes or investment properties.
When you decide to exit the home equity agreement or reach the end of its term, you’ll have to repay the initial equity investment. You might be able to do this by borrowing against your home, selling the home or other assets, or using your savings.
If you can’t repay the equity investment, because of the lien, the investor can force you to sell the property to pay for its equity share. Some home equity agreement companies say you may be able to extend your agreement, but that’s not a guarantee in your contract.
Your home’s ending value—and the share of your equity the company will receive—is determined by its sale price or newly appraised value. The equity share you owe the company depends on:
How much you’ll owe at the end of the agreement varies by company, but generally works as follows:
The biggest reason to use a home equity sharing agreement is that you don’t have the income, credit or cash flow to borrow the money you want. On the other hand, they also have some noteworthy drawbacks that might make you reconsider.
No monthly payments, interest or new debt You sacrifice substantial equity if your home gains value Repayment obligation may be lower or waived if your home loses value by the end of the agreementInitial out-of-pocket costs reduce the cash you receive up front and again when you exit the agreement
Ability to access equity without the need to borrow another loan or sell your home Might give you significantly less access to equity than alternatives Generally has no income or employment requirements Nonstandard contracts with complex terms that may be difficult to understand You can exit the agreement at any time May prevent you from refinancing or renting out your home Some companies accept credit scores as low as 500 Not available in every state See More See LessHome equity agreement costs vary by location, property characteristics and provider. That said, these are the major fees you can expect to pay when you enter into a shared equity agreement:
When you exit the agreement, you may have to pay for an appraisal, home inspection and title and escrow services again. If you’re selling your home, you’ll also pay a real estate commission to your agent.
It’s a good idea to apply to multiple home equity agreement providers as well as other alternatives, like a few home equity loan lenders, so you can get personalized information on what each option will cost you both short and long term.
Be wary of home equity agreement companies’ marketing materials. While technically accurate, they tend to obscure the true cost of a home equity agreement.
You won’t find home equity sharing agreements in the places you’d normally look for a home loan. Mortgage lenders, banks or credit unions don’t offer them. Instead, they’re available from relatively young companies that often rely on funding from venture capital firms.
Here are some prominent home equity agreement and home equity investment companies to consider:
Up to 30 years Up to 15 years Up to 10 years Up to 30 years 3.9% ($1,000 minimum) Up to 30 years 4.99% ($1,500 minimum) Up to 30 years Up to 10 years See More See LessUnfortunately, these companies only serve a limited number of states. As of February 2024, you may be eligible for a home equity agreement if you live in one of the states listed below.
Aspire offers services in the following five states:
HomePace serves customers in six states:
HomeTap is available in 16 states:
Point is available in 26 states and Washington, D.C.:
Splitero operates in areas of these five states:
Unison serves the following 29 states and Washington, D.C.:
Unlock provides services to homeowners in 14 states:
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Personal Finance ExpertAmy Fontinelle is a freelance writer, researcher and editor who brings a journalistic approach to personal finance content. Since 2004, she has worked with lenders, real estate agents, consultants, financial advisors, family offices, wealth managers, insurance companies, payment companies and leading personal finance websites. Amy also has extensive experience editing academic papers and articles by professional economists, including eight years as the production manager of an economics journal.
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