If you want to tap into your home equity but don’t want to make monthly payments like with a HELOC or a home equity loan, you may want to think about a home equity investment (HEI) contract.
HEIs, also known as home equity agreements or home equity sharing, allow you to access cash by leveraging the value of your home: Homeowners receive funds in exchange for a portion of their home’s value in the future and repayment is due all at once, either at the end of a term or when you sell your home. Unlike HELOCs and home equity loans, HEIs don’t require strong credit or a lot of equity to qualify.
The downside of HEIs, though, is that when your term ends, you’ll need to pay the principal plus an additional amount based on how much the property has appreciated, which could be more than twice your original loan amount. If you can’t pay in full, you could be forced into foreclosure.
HEIs are not nearly as popular as home equity loans or HELOCs, according to the Consumer Financial Protection Bureau, but an increasing number of people are opting to go the HEI route. In 2024, the 10 largest HEI companies signed 11,000 HEI contracts, totaling $1.1 billion in volume, per the CFPB.
Here’s what to know about a home equity investment, including who it might be right for, the benefits and drawbacks.
You can leverage equity to access cash through home equity sharing or a home equity loan.
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Home equity investment agreement
What is a home equity investment?
Home equity investments allow homeowners to receive a lump-sum cash payment in exchange for a portion of their home’s current value and future appreciation.
Unlike a home equity loan, which is paid in installments, you would repay the HEI company in full at the end of an agreed-upon term or when you sell the house.
As part of the process, the HEI company will place a lien on the property. If you fail to meet the terms of your investment, it can claim your home and force a sale.
How does a home equity investment work?
HEIs let you access cash from your home’s equity without taking out a loan.
Qualifications
Typically, homeowners need at least 20% equity and a credit score of at least 500 to qualify for an HEI.
To determine how much money you can be approved for, you’ll request a prequalification estimate. The HEI company will direct you to get a home appraisal, which determines your risk adjustment rate (typically between 2% and 30% of your home’s value).
Repayment schedule
Instead of monthly payments, you’ll repay the HEI company in one lump sum at the end of your agreed-upon term — anywhere from 10 to 30 years — or when you sell the house.
In addition to repaying the principal, you’ll pay the amount equal to your risk adjustment rate, based on the home’s value at the end of the term. If your house has appreciated in value since you signed the agreement, you’ll owe more. But if it has depreciated, you’ll owe less.
Fees
HEIs typically include an origination fee, which is usually between 3% and 5% of the cash equity advance. You’ll also have to pay for an appraisal, home inspection, title insurance and escrow services.
To avoid more upfront costs, you may be able to have these charges deducted from your payout.
A sample home equity investment
Your house is worth $200,000 and an HEI company gives you $20,000 for a 10% stake in the property, with a risk adjustment rate of 10%.
The term ends in 20 years and your home is worth $400,000. At that point, you would owe the company $60,000 — the original $20,000 plus 10% of the total appreciation
Home equity investments vs. home equity loans vs. HELOCs
An HEI is similar to a HELOC and a home equity loan because homeowners are leveraging equity to access cash. But there are significant differences, as well.
| Home equity loans | HELOC | Home equity sharing | |
|---|---|---|---|
| Structure | Lump sum loan | Revolving line of credit | A investment sharing agreement |
| Max loan amount | typically up to 85% of the home’s value, including mortgage | typically up to 85% of the home’s value, including mortgage | Typically between $15,000 and $600,000 |
| Repayment terms | After single loan disbursement, monthly payments for 10 to 30 years. | After initial draw period, monthly payments for 20 to 30 years | Full payment due at end of the term or when house is sold. |
| Origination fee | Origination fee of 0.5%–1% and closing fees of 1–5% | Origination fee of 0.5%–1% and closing fees of 1–5% | Origination fee of 3%—5% |
| Cost of borrowing | Maximum APR is 18% | Maximum APR is 18% | risk adjustment fee is 2%—20% of home’s appraised value at the time of repayment |
| Home equity required | 20% | 20% | 25% |
| Credit and debt-to-income requirements | Credit score: 620, DTI: 43% | Credit score: 620, DTI: 43% | Credit score: 500, no DTI requirement |
Home equity investment companies
HEIs are a relatively new concept, but some providers have already become leaders in the field. Make sure the company you choose has a payback cap, so you’re not paying an exorbitant amount when your bill comes due.
HomeTap
With HomeTap, homeowners can leverage their home’s value to secure up to 20% of its value, up to $600,000.
HomeTap
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Types of loans
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Credit needed
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Minimum home equity required
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Minimum income requirement
HomeTap requires homeowners to settle their investment payment within 10 years, which is shorter than some other companies.
To apply, you must have at least 15% equity in your home and live in one of the 16 states that Hometap offers HEIs.
Point
Available in 22 states, Point pays homeowners up to $500,000 for a stake in their property. It has an available repayment term of 30 years, longer than many competitors. However, its risk adjustment fee is up to 29%.
Point
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Types of loans
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Terms
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Credit needed
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Minimum home equity required
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Income requirement
The risks of home equity investments
HEIs can appeal to homeowners with poor credit or a high debt-to-income ratio, but you need to be careful: Because the risk adjustment rate is based on the fair market value of your home in the future, the overall cost of the loan isn’t clear until you pay it off.
“It’s a risky product,” said Helene Raynaud, senior vice president of housing initiatives at Money Management International, a financial services company. “Some of these investors will give you up to half a million dollars. All of a sudden, you have all this cash. The important thing is to make sure you understand what you’re getting into and can stick to your goals with that money.”
Raynaud told CNBC Select that the cash from an HEI should be put to good use, like renovating or starting a small business. If you’re taking one out to splurge on a trip or pay off credit cards, consider a different strategy.
Before signing up for an HEI, talk to a housing expert to determine if this is the best option. The Department of Housing and Urban Development (HUD) provides a list of approved housing counselors.
Home equity investments: Pros and cons
Pros
- No monthly payments or interest
- More lenient credit requirements than home equity loans
- No income requirements
- Can use funds for any purpose
Cons
- You have to surrender a portion of your home’s value
- Origination fees are higher than with HELOC or home equity loans
- Repayment is due in one lump sum when your term ends
- Some mortgage companies don’t allow HEIs
- The risk adjustment rate can be higher than the interest on a home equity loan
Alternatives to an HEI
If you have good credit and a steady income, you might want to consider one of these other options:
Home equity loan
With a home equity loan, your lender gives you a lump sum, using your home as collateral. Most lenders approve home equity loans for 80% of the house’s value, but some go as high as 85% or 90%.
Borrowers should have 15% to 20% equity for approval, a credit score of 620 to 680 and a debt-to-income ratio of 43% or less.
The funds can be used for anything — though the interest on the loan is tax-deductible if you use the money for home renovations or repairs. The repayment period on home equity loans is typically between five to 30 years.
Home equity lines of credit (HELOC)
Home equity lines of credit (HELOCs) tap the value of your home to get you a rotating line of credit you can draw on for a set period (usually 10 years), during which you’ll make interest payments. After the draw period ends, you begin repayment and can no longer use your line of credit. You’ll have a set term (typically 20 years) to repay any remaining principal, plus interest.
Like a home equity loan and HEI, your lender can force you into foreclosure for nonpayment.
Cash-out refinance
With a cash-out refinance mortgage, you’ll get a new home loan that is larger than your current one. After paying off your existing mortgage, you can use the excess cash however you want.
Cash-out refinancing usually has a lower interest rate and more flexible credit requirements. But it will take more time to get access to the funds.
Personal loan
Since it’s an unsecured debt, a personal loan avoids putting your home at risk. It’s also easier to get if you have a less-than-stellar credit history.
Lenders usually cap personal loans at $50,000 or $100,000, and the repayment term is shorter than with a home equity loan, HELOC or cash-out refinance.
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FAQs
Is home equity investment a good idea?
Home equity sharing can be a good strategy if you need cash and don’t qualify for a home equity loan or HELOC. Because your repayment amount is based on your home’s appreciated value, however, the cost of borrowing could be much higher.
Is a home equity investment legit?
Yes, home equity sharing is a legitimate financing method. Morningstar DBRS, a leading global credit rating agency, has created a rating methodology specifically for HEIs. In addition, Point, one of the leading HEI companies, reports that it surpassed $1 billion in home equity investments in 2023.
How much does an HEI cost?
In addition to repaying the principal and a percentage of the home’s appreciation, homeowners usually pay an origination fee, typically between 3% and 5% of the funding amount. You may also have to pay for an appraisal, title search and escrow services. These fees can often be deducted from your payout.
Meet our experts
At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Helene Raynaud, senior vice president of housing initiatives at Money Management International, a nonprofit debt counseling agency. Previously, Raynaud worked at the Consumer Credit Counseling Service and the National Foundation for Credit Counseling. She was a senior manager at Fannie Mae from 1999 to 2005.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage product review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best mortgage products.
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Correction: This story has been updated to include the correct link to Point‘s HEI products and to indicate the accurate calculation for a sample home equity agreement.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
