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Home Equity Sharing Companies: How They Work, Pros and Cons


Jun 4, 2023



Home equity sharing companies, also known as shared equity or shared appreciation companies, are entities that provide homeowners with an alternative way to access the value of their homes without selling or taking on additional debt. These companies invest in a portion of the homeowner's equity in exchange for a share of the future appreciation or value of the property. Here's how they generally work, along with some pros and cons:

How they work:
  • 1. Evaluation: Home equity sharing companies assess the value of the property and determine the homeowner's equity position.

  • 2. Investment: The company offers a cash investment to the homeowner, typically in the form of a lump sum or periodic payments.

  • 3. Equity Share: In exchange for the investment, the company receives a portion of the homeowner's equity. The exact share can vary but typically ranges from 10% to 40%.

  • 4. Future Payment: When the homeowner decides to sell the property or at a predetermined time, the company receives its share of the property's appreciation or value. This is usually calculated based on the initial investment and the agreed-upon percentage.

Pros of home equity sharing companies:
  • 1. Access to cash without selling: Homeowners can tap into the equity in their homes without having to sell their property, allowing them to unlock value for various purposes such as home improvements, debt consolidation, or other financial needs.

  • 2. No monthly payments: Unlike traditional loans or lines of credit, homeowners generally do not make monthly payments to the equity sharing company. This can relieve financial burdens and provide flexibility.

  • 3. Shared appreciation: If the property increases in value over time, homeowners are only obligated to repay the initial investment plus the agreed-upon share of the appreciation. They do not have to repay the entire value of the property.

  • 4. Limited risk: Homeowners are not responsible for any losses if the property's value decreases. They are only obligated to pay the predetermined share of the future appreciation or value

Cons of home equity sharing companies:
  • 1. Reduced ownership stake: By entering into an equity sharing agreement, homeowners relinquish a portion of their property's equity. This means they will receive a smaller share of any future appreciation when the property is sold.

  • 2. Less flexibility: Homeowners may face limitations on their ability to sell or make changes to the property without the consent of the equity sharing company. These restrictions can vary based on the specific terms of the agreement.

  • 3. Higher costs: The cost of working with home equity sharing companies can be higher compared to traditional financing options. The company's share of the future appreciation or value of the property, along with any additional fees or charges, can reduce the overall financial benefit for homeowners.

  • 4. Limited availability: Home equity sharing companies may have specific eligibility criteria, such as minimum property value or location requirements, making their services inaccessible to some homeowners.

It's important for homeowners considering an equity sharing agreement to carefully review the terms, understand the potential impact on their future financial situation, and seek professional advice to make an informed decision.

How sharing equity affects homeownership

Sharing equity, also known as shared equity or shared ownership, refers to a housing arrangement where multiple parties collectively own a property. This can have both positive and negative effects on homeownership, depending on the specific circumstances and individuals involved. Here are some key points to consider:

  • 1. Increased affordability: Sharing equity can make homeownership more attainable for individuals who may not have sufficient funds to purchase a property outright. By pooling resources and sharing costs, multiple parties can contribute to the purchase and ongoing expenses of a home, reducing the financial burden on each individual.

  • 2. Shared responsibilities: With shared equity, homeowners can divide the responsibilities and costs associated with property ownership. This can include maintenance, repairs, and other ongoing expenses. By sharing these tasks, the workload can be distributed among the co-owners, potentially making homeownership more manageable and affordable.

  • 3. Limited control: When sharing equity, individuals may have less control over decision-making related to the property. Co-owners typically need to consult and reach agreements on matters such as renovations, rental agreements, or selling the property. This shared decision-making process can be both beneficial and challenging, depending on the level of agreement and cooperation among the co-owners.

  • 4. Return on investment: As property values increase over time, co-owners can benefit from the appreciation in the property's value. However, the distribution of the equity gain depends on the specific agreement among the co-owners. It is crucial to have clear provisions in place to determine how the equity will be shared if the property is sold or if one of the co-owners wants to exit the arrangement.

  • 5. Exit strategies: Shared equity arrangements often have predefined exit strategies to protect the interests of all parties involved. These strategies typically outline the conditions under which a co-owner can sell their share or exit the agreement. Having a well-defined exit strategy is crucial to avoid potential conflicts or difficulties when one or more co-owners want to make changes to their ownership status.

It is worth noting that shared equity models can vary significantly. Examples include co-ownership with family or friends, community land trusts, and affordable housing programs. Each model has its own specific features and considerations that can affect homeownership differently.

Ultimately, sharing equity can be an effective means for individuals to access homeownership and share the associated costs and responsibilities. However, it is essential to carefully consider the specific terms, legal agreements, and potential challenges associated with such arrangements to ensure a positive and mutually beneficial homeownership experience.

You want to cash-out home equity but you don't qualify for (or don't want) a HELOC or a home equity loan

Investing in homes does not have an average ratio of debt and income but is typically flexible on the basis of the minimum score. Underwriting is especially beneficial for individuals self-employed and independent workers who lack consistent income to qualify for traditional products such as cash-in refinancing.

You want to cash-out home equity but you don't qualify for (or don't want) a HELOC or a home equity loan

If you want to cash out your home equity but don't qualify for or don't want a Home Equity Line of Credit (HELOC) or a home equity loan, there are a few alternative options you can consider:

  • 1. Refinance your mortgage: You can refinance your existing mortgage with a new one that has a higher loan amount, allowing you to access the equity in your home. This option is suitable if you qualify for a mortgage refinance and can secure a favorable interest rate.

  • 2. Sell and downsize: If you're comfortable with the idea of moving, you can consider selling your current home and purchasing a smaller, less expensive property. This way, you can cash out the equity in your home and use the proceeds for other purposes.

  • 3. Rent out part of your home: If you have extra space in your home, such as a basement or an accessory dwelling unit (ADU), you could consider renting it out. This can provide you with additional income that you can use as desired.

  • 4. Peer-to-peer lending: Some online platforms offer peer-to-peer lending options where you can borrow against your home equity. These platforms connect borrowers directly with individual investors who provide the loan funds.

  • 5. Personal loan: While a personal loan typically doesn't use your home equity as collateral, it can still provide you with access to funds. However, keep in mind that personal loans may have higher interest rates compared to loans secured by home equity.

  • 4. Equity sharing: Equity sharing involves partnering with an investor who provides the funds in exchange for a share of the property's future appreciation. This option allows you to access your home equity without taking on additional debt.

It's important to thoroughly research and consider the terms, interest rates, and potential risks associated with any alternative options you choose. Consulting with a financial advisor or a mortgage professional can help you evaluate the best course of action based on your specific financial situation and goals.

Pro: It's easier to qualify

The company may require stricter rules than traditional mortgage borrowers. Unlocks or hometap have fewer than 5500 credit score requirements. A borrower who has lowered the score may have difficulty receiving a loan for a HEELOC or home equity loan. Some of them may even offer flexibility for their income or sometimes they may not require them. Borrowers with scores below the minimum limit may be required to fulfill other requirements, such as the minimum draw amount.

Con: You have to pay all at once

Home equity agreements are similar to balloon-payment loans and are big enough for the long term. The barrier that makes a monthly bill untenable to you now might mean removing the balance from the balance of your contract if there's no immediate change in your income. You will need to repay all your investment as soon as your property appreciates. Your heirs are required to sign a contract when you die. Those were serious matters.

How to get started

If you have credit scores above 650 and an unsecured loan/capacity ratio below 70% then you can invest in Unison. You have access to equity through this website within just a few steps. You must then get approval online within a couple of minutes via its online form. After approval you are required to complete your application form. When you submit a loan application, you will work with Unison in preparing a home appraisal that determines the final investment value. Lastly, you can send an acceptance letter and receive your funds within a week of signing.

You want to renovate your home without getting into debt

Renovating your home without getting into debt is a smart approach to ensure financial stability. Here are some tips to help you achieve your goal:

  • 1. Set a budget: Determine how much you can afford to spend on the renovation project. Take a close look at your finances and allocate a specific amount for the renovation.

  • 2. Prioritize your needs: Identify the essential renovations that need to be done first. Focus on functional upgrades that will improve your quality of life or add value to your home. Avoid unnecessary cosmetic changes that can be addressed later.

  • 3. Research and plan: Spend time researching materials, contractors, and prices to find the best deals. Plan your renovation project thoroughly to avoid unexpected expenses or delays.

  • 4. DIY where possible: Consider doing some of the work yourself if you have the skills and time. Simple tasks like painting, installing fixtures, or minor repairs can save you money on labor costs.

  • 5. Compare quotes: Get multiple quotes from different contractors for the work you can't do yourself. Compare their prices and reviews to find the most cost-effective option without compromising quality.

  • 6. Use recycled or secondhand materials: Explore salvage yards, online classifieds, or community marketplaces for recycled or secondhand materials that are still in good condition. This can significantly reduce your costs.

  • 7. Focus on energy efficiency: Invest in energy-efficient upgrades such as insulation, LED lighting, or energy-saving appliances. While these upgrades may have upfront costs, they can result in long-term savings on utility bills.

  • 8. Renovate in stages: If your budget is limited, consider renovating your home in stages. Prioritize the most critical areas or rooms first and complete additional renovations when finances allow.

  • 9. Avoid unnecessary borrowing: While it may be tempting to take out a loan or use credit cards for renovations, it's best to avoid additional debt. Instead, focus on saving money over time to fund your renovation project.

  • 10. Explore government incentives: Check if there are any government programs or incentives available that can help offset the costs of your renovation. Some regions offer grants or tax credits for energy-efficient upgrades.

Remember, renovating your home without debt requires discipline and careful planning. Be patient, take your time, and make informed decisions to achieve your renovation goals while staying financially responsible.

You want to access your home equity for another real estate investment

Another purpose people have shared equity agreements is to remove equity from a house in order to invest it in another property. Several Americans do it through home equity loans, but share equity agreements have many benefits. If you're considering accessing your home equity to invest in another real estate property, here are a few steps you can follow:

  • 1. Assess your current home equity: Determine the current value of your home and subtract any outstanding mortgage balance or other liens. This will give you an estimate of your home equity—the portion of your home that you own outright.

  • 2. Research loan options: Explore different loan options available to access your home equity. Some common options include home equity loans, home equity lines of credit (HELOCs), or cash-out refinancing. Research and compare the terms, interest rates, and fees associated with each option to find the most suitable one for your needs.

  • 3. Consult with a mortgage professional: Reach out to a mortgage professional or financial advisor who can provide guidance specific to your situation. They can help you understand the implications of using your home equity and assist you in selecting the right loan product.

  • 4. Assess the risks: Investing in real estate always carries risks, including market fluctuations, property management challenges, and potential financial setbacks. Evaluate the risks associated with the new investment property and consider your risk tolerance before proceeding.

  • 5. Analyze the potential returns: Conduct a thorough analysis of the potential returns from the new real estate investment. Consider factors such as rental income, property appreciation, expenses (including mortgage payments), and any tax implications. Ensure that the investment aligns with your financial goals and expectations.

  • 6. Create a detailed investment plan: Develop a comprehensive plan for the new real estate investment. This should include the purchase price, financing details, expected rental income, projected expenses, and a contingency fund for unexpected costs. Be realistic and conservative in your projections to account for unforeseen circumstances.

  • 7. Consider the impact on your current home: If you access your home equity, understand how it may impact your current home. Be aware of potential changes in your mortgage terms, monthly payments, and overall financial stability. Ensure that you can comfortably manage the new loan and the potential risks associated with both properties.

  • 8. Execute your investment plan: Once you have considered all the factors and are confident in your decision, proceed with the loan application process and purchase of the new property. Be diligent in your due diligence, property inspections, and legal processes to protect your investment

Remember to always seek professional advice from a mortgage professional, financial advisor, or real estate expert who can provide personalized guidance based on your specific circumstances and local market conditions.

How a home equity sharing agreement works

You want an estimate before submitting your property to a company specializing in housing equity. The estimated cost would roughly be a portion of the value of a house if you could sell it. In some cases, homeowners will require home appraisers to determine what is worth the property. In this case, the bank will lend you the money. Although they do own their own property technically, the company cannot take over the rest of your residence. Instead of paying interest, investors pay a share of your home's value. There's no monthly payment. It allows the homeowner to access the equity in their home without taking out a traditional loan or selling the property. Here's how it typically works:

  • 1. Agreement Terms: The homeowner and the investor negotiate and agree upon the terms of the arrangement. This includes the amount of equity to be shared and the duration of the agreement. The homeowner may receive a lump sum payment or ongoing payments from the investor in exchange for sharing a portion of the home's future appreciation.

  • 2. Funding: Once the agreement is in place, the investor provides the agreed-upon funds to the homeowner. The homeowner can use these funds for various purposes, such as home improvements, debt consolidation, or other financial needs.

  • 3. Shared Appreciation: In return for the funds received, the homeowner agrees to share a portion of the future appreciation of the property with the investor. This means that when the homeowner sells the property or the agreement term ends, they must repay the initial investment plus a percentage of the home's appreciation. The specific percentage is determined by the terms of the agreement.

  • 4. Sale or Termination: The agreement typically ends when the homeowner sells the property, refinances, or when the agreed-upon term expires. At this point, the homeowner is required to repay the investor based on the terms of the agreement. If the home's value has appreciated, the investor will receive their initial investment plus the agreed-upon share of the appreciation. If the home's value has declined, the investor may share in the loss or receive a lower return.

  • 5. Responsibilities and Maintenance: While the homeowner retains the right to live in and maintain the property, they are typically responsible for all costs associated with homeownership, including property taxes, insurance, and maintenance. The investor typically does not have any ownership rights or responsibilities beyond their financial interest in the property.

It's important for homeowners considering a home equity sharing agreement to carefully review the terms of the agreement and seek legal and financial advice to ensure they understand the implications and potential risks involved. The specific details and variations of home equity sharing agreements can vary, so it's essential to read and understand the specific terms of the agreement being offered.

What does a shared equity agreement cost?

In share-equity agreements the home owner pays a fee for appraisals and fees for transactions or originations including taxes on title and escrow, title insurance, taxes, and other fees. These costs could be refunded in cash by the amount of money available to you. Unison also charges 2% Transaction Originations Fees. In contrast, Unlock charges 3.9%. An appraised property can determine its value but it is possible for a risky investor to discount it. Unison reducing its valuation by 5% is an effective strategy. So if you get your home assessed at $450,000 that is $388,000.

In these types of agreements, the cost to the homeowner is usually the agreed-upon percentage of the property's appreciation or equity that is shared with the investor. This means that the homeowner may receive a smaller portion of the property's appreciation or equity when they sell the property compared to if they owned the entire property outright.

The specific percentage and terms of the shared equity agreement can vary significantly, depending on the negotiation between the homeowner and the investor. Typically, the investor may require a higher percentage of the property's appreciation or equity in exchange for providing the upfront funding. This allows the investor to recoup their investment and potentially earn a return on their investment when the property is sold.

It's important to note that shared equity agreements are structured in various ways, and the costs can differ based on the specific terms of each agreement. It is recommended to consult with a real estate professional or an attorney who specializes in these types of agreements to get a better understanding of the potential costs involved in a specific shared equity agreement.

How we chose the best home equity sharing companies

Our team evaluated 7 different home equity investment firms to find out what each had the best results. Throughout the assessment seven different aspects were identified including the following. Here are some steps you can follow to make an informed decision:

  • 1. Research and Understand Home Equity Sharing: Start by understanding what home equity sharing is and how it works. Home equity sharing involves partnering with a company or investor to access a portion of your home's equity in exchange for a share of the future appreciation or a set return on investment.

  • 2. Define Your Goals: Clarify your objectives for utilizing home equity sharing. Are you looking to access cash for home improvements, debt consolidation, or other financial needs? Understanding your goals wil help you assess which companies align with your specific requirements.

  • 3. Research and Compare Companies: Conduct thorough research to identify the top home equity sharing companies in the market. Look for reputable companies with a track record of success and positive customer reviews. Compare their terms, conditions, fees, and the level of control they offer homeowners.

  • 4. Evaluate Transparency and Trustworthiness: Look for companies that are transparent about their processes, fees, and legal agreements. Check if they have professional certifications, affiliations, or regulatory oversight. Trust is crucial when entering into a long-term financial arrangement, so choose a colmpany that instills confidence.

  • 5. Review Terms and Conditions: Carefully review the terms and conditions of each company. Pay attention to factors such as the percentage of equity you can access, any restrictions or limitations, the duration of the agreement, and how they handle potential home appreciation or depreciation.

  • 6. Assess Customer Support: Consider the level of customer support and guidance provided by the company. Home equity sharing can be complex, so it's essential to choose a company that offers clear communication, responsive customer service, and ongoing support throughout the process.

  • 7. Seek Professional Advice: Consider consulting with a financial advisor, real estate attorney, or other professionals who can provide guidance based on your specific financial situation and goals. They can help you understand the potential risks, benefits, and legal implications associated with home equity sharing.

  • 8. Read Legal Agreements Carefully: Once you have selected a home equity sharing company, thoroughly read and understand the legal agreements before signing. Ensure that you are comfortable with all the terms and obligations outlined in the contract.

  • 9. Compare Offers: If you receive offers from multiple home equity sharing companies, compare them side by side. Evaluate the financial terms, fees, and conditions to determine which offer aligns best with your needs.

  • 10. Make an Informed Decision: After considering all the factors mentioned above, make a well-informed decision based on your research, personal goals, and the company that offers the most favorable terms and conditions.

Remember, it's crucial to conduct your own due diligence and consider your unique circumstances before choosing a home equity sharing company.

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1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.

2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.

3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.

4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.

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