You have equity in your home and need cash. But a traditional home equity loan won’t work for you because you can’t afford more monthly payments, or your credit score won’t allow it. A home equity sharing agreement might be the solution you need.
This unique financing option lets you unlock money from your home’s equity without the burden of monthly loan payments. By partnering with an investor or equity sharing company, you can get a lump-sum cash advance in exchange for a share of your home’s future appreciation.
In this guide, we’ll explain the benefits, the process, and provide information to help you decide whether this option is right for you. We’ll also share tips and insights from a top home equity sharing expert.
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Editor’s note: This post is meant for educational purposes, not financial advice. If you need assistance navigating home equity sharing agreements, HomeLight encourages you to reach out to your own financial advisor.
What is a home equity sharing agreement?
“A home equity sharing agreement, also known as a home equity agreement (HEA), is a no-loan option for homeowners to access the equity they’ve built in their homes,” explains Michael Micheletti, chief marketing officer at Unlock, a leading home equity sharing company. “Homeowners receive cash up front (the amount varies by provider) in exchange for a portion of their home’s future value.”
With an HEA, a homeowner sells a slice of their home’s future appreciation to an investor in exchange for upfront funds they can use immediately.
“Because a home equity agreement or home equity sharing doesn’t involve a loan, there are no interest charges or monthly payments for homeowners,” Micheletti says. Instead, the homeowner agrees to share a percentage of the property’s future value when it’s sold, refinanced, or after a specified period.
This arrangement can be especially beneficial to homeowners with less-than-perfect credit scores.
How does home equity sharing work?
Let’s look at an example of what a home equity sharing agreement might look like. In this scenario, we’ll use a $400,000 property value. This could be how much your paid-off home is worth or how much equity stake you own in the house.
If an equity sharing company buys a 20% stake in your home equity and your house is worth $400,000, the investor group would give you an $80,000 lump sum.
- Your home’s current value: $400,000
- Amount of cash you need: $80,000
- Investment company’s stake: 20%
- Home equity sharing contract term: 10 years
- Home’s annual appreciation rate: 3%
At the end of 10 years, the house appreciates to about $537,500. The homeowner will need to pay back the original investment ($80,000) plus the investor’s 20% stake in the home’s $137,500 appreciation amount ($27,500). In this case, the payback amount would be about $107,500.
Our table below illustrates the breakdown of this home equity sharing scenario and what happens if the home depreciates in value. After all, this is an investment venture that carries risk for the investor.
| If your house appreciates | If your house depreciates | |
| Starting home value | $400,000 | $400,000 |
| Home value at repayment | $537,500 | $380,000 |
| Total increase/decrease | $137,500 | -$20,000 |
| Shared equity percentage | 20% (for gain of $27,500) | N/A (loss of $20,000) |
| Original funding amount | $80,000 | $80,000 |
| Amount you owe the investor | $107,500 | $60,000 |
“During the term of the HEA, homeowners are responsible for continued, regular payment of existing obligations on their property, including mortgage payments, homeowners’ association fees, and all local and/or state property taxes,” Micheletti says. “They are also responsible for the care and upkeep of the property, including all repairs, maintenance, and other associated costs.”
Micheletti adds that some home equity agreement companies, like Unlock, provide adjustments for home improvements made during the term of the agreement. “So homeowners keep the value created by those improvements.”
What if your home decreases in value?
With a home equity sharing agreement, the company shares in both the appreciation and depreciation of your property.
If your home’s value decreases, the amount you owe the company will also decrease. As shown in our example, if your home’s value drops from $400,000 to $380,000 and the company has a 20% equity share, it would receive $60,000 rather than the original $80,000.