Best Home Equity Investment Companies
By The Money Manual Editors 
Owning a home is a significant investment. Aside from the value appreciation real estate can receive over time, there is also the equity you build — the portion of your house you own outright — as you pay down your mortgage. Equity that you can tap into should you need to help cover other major expenses that may come up. How do you access that equity? Well, a new and increasingly popular option is home equity investments.
The Money Manual’s Top Picks For Home Equity Investment Companies
- Investment Amount: $30k to $500k
- Eligible Properties: Most residential properties (single-family, condos, 2 to 4-unit properties), including owner and non-owner-occupied properties
- Term Length: 10 years
- How To Settle: Sell the property or buy out Unlock’s original investment (partial payments over time allowed)
- Applicant Requirements: FICO score of at least 500 and a minimum of 20% equity in a property
- State Availability: AR, CA, CO, FL, MI, MN, NV, NJ, NC, OR, SC, TN, UT, VA, and WA
Best For Low Credit Scores
- Investment Amount: Up to 30% of a property’s value or a maximum of $600k
- Eligible Properties: Single-family homes or condos
- Term Length: 10 Years
- How To Settle: Sell the property, buy out Hometap’s original investment, or take out a home equity (or other) loan
- Applicant Requirements: A minimum FICO score of 500 and a minimum of 25% equity in a property
- State Availability: AZ, CA, FL, MD, MA, MI, MN, NV, NJ, NY, NC, OH, OR, PA, SC, UT, VA and WA
How Does A Home Equity Investment Work?
A home equity investment, also known as a home equity sharing agreement, allows you to exchange partial equity in your home for a lump sum of cash. This is not a loan, so you’re not making monthly repayments and no interest is collected. Instead, the cash is yours to use as you wish. The agreement is set to last a fixed amount of time, typically between 10 and 30 years. During which, or at the end of, you must settle up. This can involve selling your home and giving the investing company their share of the profits, buying out the company, or taking out a home equity (or other) loan to pay them back.
What If I Don’t Want To Give Up Partial Equity In My Home?
If you’re not comfortable selling a portion of your home but would still like to take advantage of accessing the equity you have in it, another option is a home equity line of credit (HELOC). HELOCs operate like credit cards. You are given a revolving line of credit that is secured against the equity you have in your home, and you can borrow money from your credit line at any time during your draw period.
The Money Manual’s Top Pick For HELOCs
Best For Revolving Credit
- Credit Limit: $20k to $400K
- APR: 4.49% to 12.25%
- Eligible Properties: Single-family homes, townhouses, planned urban developments (PUDs), and most condos, whether they are primary or secondary residences
- Term Length: 5-year term with a 2-year redraw period, 10-year term with a 3-year redraw period, 15-year term with a 4-year redraw period, and a 30-year term with a 5-year redraw period
- How To Settle: Make recurring payments until your balance is paid off
- Applicant Requirements: A FICO score of at least 640 in most states and 680 for investment properties
- State Availability: AK, AL, AR, AZ, CA, CO, CT, DC, FL, GA, IA, ID, IL, IN, KS, LA, MA, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, OH, OK, OR, PA, RI, SD, TN, VA, VT, WA, WI, WY
How Does A HELOC Work?
HELOCs happen in two phases: A draw period and a repayment period. A draw period is the time between when a HELOC is opened and when the repayment period begins. During the draw period, you can continue to spend your line of credit without being required to pay anything back. However, some HELOC lenders may require you to at minimum make interest payments on your balance. During the repayment period, you can no longer borrow funds from your line of credit and instead must start paying off your balance, interest included. The entirety of your balance must be paid by the end of the repayment period.
Frequently Asked Questions
Home equity is the difference between your home’s market value and what’s still owed on it’s mortgage. As you pay down your mortgage, you gain more equity in the property. Pay off your your mortgage in entirety and you will have full equity in the property.
Example
Home Value: $350,000
Down Payment: $30,000
Mortgage: $320,000
Home Equity: $30,000
Yes, you own your home and have full control over it. The investing company will only share in the change in its future value. They do not go on the title.
A third party will be hired to conduct the home appraisal. You will need to grant access to the property so the appraiser can evaluate the condition of the property in full, as well as provide relevant documentation for the underwriting of an investment agreement.
Either way, the investing company will share in the loss or gain. If it depreciates, you will owe the investing company less than you would have if your property maintained its market value at the time of entering the agreement. And if it appreciates, you will owe them more.
Example
Home Appreciation Home Depreciation
Starting Value: $350,000 Starting Value: $350,000
Risk Adjustment: 3.5% ($12,250) Risk Adjustment: 3.5% ($12,250)
Adjusted Home Value: $337,750 Adjusted Home Value: $337,750
Investing Company’s Equity: 10% Investing Company’s Equity: 10%
Home Value Change: 7.5% ($25,331.25) Home Value Change: 7.5% ($25,331.25)
New Home Value: $363,081.25 New Home Value:$312,418.75
Original Funding Amount: $10,132.50 Original Funding Amount: $10,132.50
Amount You Owe: $36,308.13 Amount You Owe: $31,241.88
Yes, but it will have a minor impact on your credit score. What will impact your credit score most is how you manage your account or agreement. If you default on a home equity investment, you risk foreclosure on your property.
In either case, your home could be foreclosed on. You may be able to receive additional financial assistance or a term extension from the investing company or help from an outside resource, but nothing is guaranteed. It is important to stay on top of your payments and settle your home investment agreement by the end of your term. Like with any major financial decision, carefully weigh your options before applying for a home investment.
Home Equity Agreement – Exchange an equity share in your home for a lump sum of cash. You can whatever you like with the cash. You settle the agreement before or at the end of your agreement term by selling your home, buying out the investing company or taking out a home equity (or other) loan to pay them back.
Home Equity Loan – Borrow money that is secured against the equity you have in your home. You must make monthly repayments over a fixed term, interest included, until the full balance is paid back at the end of the term.
HELOC – This is a revolving line of credit that is secured by the equity you have in your home. You can spend your line of credit as you wish during the draw period. During the repayment period, you can no longer spend your credit line, and must pay back what you’ve borrowed, plus interest, via monthly payments over a fixed term.
Pros
- The great thing about home equity agreements is that they are not a form of debt. So, if you need a large sum of cash but can’t or don’t want to take on monthly repayments of any kind for borrowing money, home investments are a great option.
- You don’t pay interest on the money you receive, and there are no restrictions on what you can do with the money. Once you get the cash, it’s yours to do whatever you want with it.
- You don’t need to have perfect credit to take advantage of this option. Home investment company works with people at various credit levels, from poor to great!
- For the most part, there are no income requirements as long as you have enough equity in your home and meet credit requirements.
Cons
- You need to own a certain amount of equity in your home before you can even qualify for an investment – usually at least 20%.
- If your property does appreciate in value, the investing company shares in that appreciation. So, if you were to sell, they would get a bigger cut than their original investment amount. If you were to buy them out to regain the equity you sold, it would be at a higher cost to you.
- Many home investment companies charge a one-time service fee on the money they give you and will take that fee out of that money (usually a small percentage). So you’re not actually getting the full amount you applied for.
- Home investment companies make risk adjustments to property appraisals (to mitigate their risk), so your property will likely end up being undervalued, affecting the amount of money you will ultimately receive.
- Your property is collateral. Default on payments and you risk losing it.
Pros
- With a HELOC, you may be able to borrow a lot more money than you would be able to with a home equity investment. Of course the amount depends on how much of your property you own, but some lenders may let you borrow up to 80% to 90% of the equity you own.
- Similar to a credit card, you can use the funds available to you as you need them during your draw period, which can last a couple of years.
- HELOCs generally have lower interest rates than credit cards and you don’t have to immediately start paying back the money you borrow. You’ll have several years.
- If you use your HELOC to make home improvements, the interest you collect is tax deductible, (only up to certain amount, as with most tax deductions).
Cons
- During your draw period, while some lenders may only require that you make small monthly interest payments during your draw period, when you enter your repayment period, your monthly payments could double or even triple. This can be a very inconvenient and sudden change to your finances.
- Unlike a credit card where you’re allowed as much time as you need to pay of your debt, with a HELOC, you have to pay back all of the money you borrowed during your draw period by the end of your HELOC term.
- HELOCs come with the same risk as credit cards. Because you have a well of cash that you can dip into whenever you need to, you may overspend and take on a lot of debt as a result. It’s important to practice discipline. After all, this is money you will have to pay back, plus interest.
- HELOCs have variable interest rates, so your rate can go up and down depending on The Federal Reserve’s interest rate decisions, leaving you with uncertainty about how much interest your debt will collect once you enter the repayment phase of your HELOC.
- Your property is collateral. Default on payments and you risk losing it.
