Home Equity Sharing Agreement: How To Tap Into This Alternative Financing

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.

How a Home Equity Sharing Agreement Works

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.

Related: Why Home Equity Matters

Home Value

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.

Ownership

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.

Property Type

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.

Repayment of the Equity Investment

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.

Ending Value and Equity Share

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 your home’s value has increased or decreased between the starting and ending values
• The amount of cash you received from the company at the beginning of the agreement
• The percentage of your home’s ending value or change in value that you’ve agreed to give the company

How much you’ll owe at the end of the agreement varies by company, but generally works as follows:

• If your home appreciates in value, you pay the company a percentage of your home’s ending value or a percentage of your home’s appreciation.
• If your home value stays the same, you pay the company a percentage of your home’s ending value or the amount you originally accessed.
• If your home loses value, you pay the company a percentage of your home’s ending value, a portion of the equity you originally accessed or nothing.

Pros and Cons of Home Equity Sharing Agreements

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.

Pros	Cons
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 agreement	Initial 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

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What Does a Shared Equity Agreement Cost?

Home 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:

• Origination fee. 3% to 5% of the cash equity advance
• Appraisal fee. $200 to $1,250
• Home inspection. $650 to $1,050
• Title services. $200 to $900
• Escrow services. $250 to $500

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.

Where To Get a Home Equity Sharing 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:

Company	Max Equity Access (%)	Equity Access Min/Max ($)	Term	Origination Fee (% of Tapped Equity)
Aspire	15%	$35,000/ $250,000	Up to 30 years	3%
Homepace	15%	N/A/ $250,000	Up to 15 years	3% to 4%
HomeTap	25%	N/A/ $600,000	Up to 10 years	3%
Point	20%	$25,000/ $500,000	Up to 30 years	3.9% ($1,000 minimum)
Splitero	30%	N/A/ $500,000	Up to 30 years	4.99% ($1,500 minimum)
Unison	15%	$30,000/ $500,000	Up to 30 years	3.9%
Unlock	35%	$30,000/ $500,000	Up to 10 years	4.9%

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Unfortunately, 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:

• California, Colorado, Florida, Massachusetts and Washington

HomePace serves customers in six states:

• Arizona, Colorado, Illinois, Minnesota, North Carolina, Ohio, Tennessee, Utah and Washington

HomeTap is available in 16 states:

• Arizona, California, Florida, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Virginia and Washington

Point is available in 26 states and Washington, D.C.:

• Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, Washington and Wisconsin

Splitero operates in areas of these five states:

• California, Colorado, Oregon, Utah and Washington

Unison serves the following 29 states and Washington, D.C.:

• ​​Arizona, California, Colorado, Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington and Wisconsin

Unlock provides services to homeowners in 14 states:

• Arizona, California, Colorado, Florida, Michigan, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia and Washington