Understanding Home Equity Sharing Agreements
Home equity agreements or investments (HEA or HEI) present a unique opportunity for homeowners to capitalize on their property’s equity without accruing additional debt. Instead of securing a traditional loan, homeowners can partner with home equity sharing companies that offer a lump sum payment, often reaching up to $500,000, in exchange for a percentage of the property’s future value. This financial strategy allows individuals to utilize funds for various purposes such as investing in real estate, enhancing their home, or paying off existing debts.
Top Home Equity Sharing Companies
After thorough research, we’ve compiled a list of the leading home equity sharing companies, each catering to specific needs and scenarios.
- Point: Best for investment property owners
- Hometap: Best for tracking your home equity investment
- Unlock: Best for individuals with lower credit scores or unconventional incomes
- Splitero: Most flexible timeline options
- Unison: Most widely available across states
- EquityChoice: Most predictable interest rates
Comparative Overview of Home Equity Sharing Companies
| Company | HEI Terms | Availability | Minimum Credit Score |
|---|---|---|---|
| Point | Up to $30,000-$500,000 or 20% of home value, flexible 30-year term | 25 states + D.C. | 500 |
| Hometap | Up to $600,000 or 25% of the home’s equity in 4-7 business days | 17 states + D.C. | 500 |
| Unlock | Up to $50,000-$500,000, 10-year term | 19 states | 500 |
| Splitero | Between $50,000-$500,000, flexible 10-30 year terms | 13 states | 500 |
| Unison | Between $30,000-$500,000 or up to 15% of home value, flexible 10-30 year terms | 29 states + D.C. | 680 |
| EquityChoice | Up to $500,000 or 16% of home value, 10-year term | 19 states | 680 |
Features and Benefits of Selected Companies
1. Point: Best for Investment Property Owners
Point offers funding up to 20% of your home’s value with no prepayment penalties. Available in 25 states, it allows funding on investment properties, making it ideal for real estate professionals.
2. Hometap: Enhanced Investment Tracking
Hometap provides a Home Equity Dashboard, allowing users to estimate current home values and costs. It offers funding within a week and a clear insight into financial decisions.
3. Unlock: Low Eligibility Requirements
Unlock stands out for its low credit requirements and no income restrictions, making it highly accessible. It provides dedicated support to applicants, enhancing user experience.
4. Splitero: Flexibility with Terms
Known for its “Maturity Match” feature, Splitero aligns HEIs with primary mortgage timelines, allowing ample financial flexibility for homeowners.
5. Unison: Broad Availability
As one of the most recognized names in home equity sharing, Unison offers significant funding while maintaining a flexible application process that does not impact credit scores.
6. EquityChoice: Predictable Costs
EquityChoice provides a “shared appreciation mortgage” with fixed interest rates, allowing for predictable future expenses which is appealing for strategic financial planning.
Pros and Cons of Home Equity Sharing
- Pros:
- No monthly payments required.
- Minimal upfront costs.
- Low credit score requirements.
- Funds can be utilized with few restrictions.
- Quick access to funding compared to traditional loans.
- Shared risk in case of property depreciation.
- Cons:
- Liens may be placed on your property.
- High equity requirements.
- Unpredictable final costs.
- Potential fees for early repayment.
- Complex terms and conditions.
- Possible tax implications on capital gains.
Alternatives to Home Equity Sharing
For those considering leveraging home equity, several alternatives are available, each with distinct advantages and drawbacks:
- Home Equity Loan: Provides a lump sum based on home equity.
- HELOC: Functions like a credit card, providing flexibility for withdrawals.
- Cash-Out Refinance: Replaces existing mortgage with a higher amount for cash.
- Reverse Mortgage: Available for seniors, allowing for cash withdrawals against home equity.
- Personal Loans: Unsecured loans typically with higher interest rates.
- Hard Money Loans: Fast financing options with high-interest rates, often used for short-term needs.
FAQs about Home Equity Sharing
Is shared home equity a good investment?
Shared home equity can be a viable option for homeowners wanting to leverage their equity without incurring monthly payments or restrictive upfront costs. Conducting due diligence is crucial to understand the risks involved.
Who qualifies for a home equity sharing agreement?
Eligibility typically hinges on having substantial home equity, with various companies imposing credit score and property type requirements. However, these criteria are often less stringent than traditional financing options.
What are the tax implications of home equity sharing?
The funds received from home equity agreements are generally not taxed since they are considered investments. However, homeowners may incur capital gains tax when selling the property or settling the agreement.