HELOC Alternatives: 8 Options to Consider Instead

If you don’t want to take out a HELOC or a home equity loan, or you haven’t been able to qualify for one, the good news is that you have several other options to consider instead. Many of these HELOC alternatives may be available to you, even if you have a low credit score or unpredictable income.

Some of the alternatives to home equity loans and HELOCs mentioned below include other ways to tap into your home equity that you may not know about. There are also other unsecured loan options to consider that won’t require you to use your home as collateral. As with anything, there are pros and cons to each of these lending options. Finding the one that’s best for you will depend on your risk tolerance, available home equity, and personal finances.

8 HELOC alternatives and how they work

HELOC or home equity loan alternatives	How it works	Main drawbacks
Home equity agreement	Get a lump sum in exchange for a share of your home’s future value with no monthly payments.	You may owe more than the lump sum you received.
Reverse mortgage	Seniors age 62 and up can access cash by borrowing against their home equity with no monthly payments.	Typically comes with high fees and interest charges
Sale-leaseback agreement	Sell your home to a new owner but rent it back from them.	You become a renter and no longer own your home.
Cash-out refinance	Get a new, larger mortgage and replace your current one, while withdrawing the difference in cash.	Your mortgage interest rate could increase.
Personal loan	Get an unsecured loan in a lump sum and repay it in fixed installments.	Usually have higher interest rates than HELOCs and home equity loans.
Personal line of credit	Get an approved credit limit, typically from a bank, and use it as needed.	Typically includes a variable interest rate, which can be unpredictable.
Credit card	Use your credit card to make a large purchase, taking advantage of any promotional 0% APR offers.	If you don’t pay it back within the promotional period, you could pay a sky-high interest rate.
401(k) loan	Borrow money from your own retirement account and repay it.	Missed investment growth and potential early withdrawal penalties and taxes if you don’t pay it back.

1. Home equity agreement (HEA)

A home equity agreement lets you receive a lump sum of cash in exchange for a percentage of your home’s future value. With an HEA, you’re not borrowing money that needs to be repaid with interest. Instead, you’re selling a share of your home’s future appreciation (or depreciation) to an investment company.

To qualify for an HEA, you’ll typically need 20% equity in your home to meet your HEA company’s loan-to-value (LTV) ratio requirements, though it varies by provider. HEA credit score requirements are much less stringent than traditional home equity loans or HELOCs, with some HEA providers accepting credit scores as low as 500. Some HEA providers focus on primary residences, though some—including Point—also work with investment properties, albeit with stricter criteria.

HEAs work best for homeowners who don’t qualify for traditional lending products. They’re also a good fit if you can’t afford monthly payments but have a stable housing situation. That said, avoid HEAs if you’re planning to stay long-term in a home likely to appreciate significantly, or if you need to refinance soon.

2. Reverse mortgage

A reverse mortgage—specifically a Home Equity Conversion Mortgage (HECM)—lets you convert home equity into cash without monthly mortgage payments. You can receive funds as a lump sum, monthly payments, a line of credit, or a combination of those options. The loan becomes due when you move, sell the home, or pass away.

The catch is that you must be 62 or older to qualify for a HECM. You’ll also need substantial equity in your home by either owning it outright or having a low enough mortgage balance to pay it off using your reverse mortgage. Additionally, you must remain current on property taxes, insurance, and home maintenance throughout the loan term. 

Reverse mortgages work best for seniors 62 and older needing retirement income or a lump sum for major expenses. They’re a good fit if you plan to stay in your home long-term and can maintain the property. However, you should consider alternatives if you want to leave your home to heirs or might need to move within five to 10 years.

3. Sale-leaseback agreement

A sale-leaseback agreement is a transaction where a homeowner sells their property to a company or investor and then immediately leases it back as a renter. This allows the homeowner to unlock the equity in their home without having to move out. Instead of taking on a loan or monthly debt payments, they receive a lump sum from the sale and continue living in the home under a lease.

Most people who qualify for a sale-leaseback simply need to own a home with substantial equity and have the ability to maintain rental payments. Since it’s not a loan, credit scores and employment history typically matter less than in traditional lending. However, programs may have restrictions on property type or condition.

Consider this option if you absolutely cannot qualify for any loan product or need maximum equity access quickly. It works if you need short-term housing stability while planning your next move. However, avoid sale-leasebacks if you want to maintain homeownership or plan to stay long-term.

4. Cash-out refinance loan

A cash-out refinance replaces your current mortgage with a larger one, and you receive the difference in cash. For example, if you owe $150,000 on a home worth $300,000, you might refinance for $200,000 and receive $50,000 cash (minus closing costs).

	Before the cash-out refinance	After the cash-out refinance
Home value	$300,000	$300,000
Mortgage balance	$150,000	$200,000
Home equity	$150,000	$100,000
Cash received	$0	$50,000*

*Before closing costs, assuming no change in home value.

The requirements are similar to standard mortgages but can be stricter. Lenders typically want credit scores of 620 or higher and DTI ratios below 43%, though qualifications can vary. You’ll also need sufficient equity in your home to qualify for a cash-out refinance, with lenders usually requiring you to maintain at least 20% equity after the cash-out. 

A cash-out refinance makes the most sense when you can secure a new mortgage rate that’s close to—or lower than—your current rate. It can also be a good option if you need a larger lump sum for a major expense. However, if today’s rates are higher than your current mortgage rate, refinancing can be more expensive than alternatives like a HELOC or home equity loan.

If a client wants to take out equity in their home for home improvements or deferred maintenance projects and the need is not urgent, my first recommendation is to work on improving their financial situation so they can eventually qualify for a home equity loan or HELOC. If the need is urgent and they have the ability to pay off the loan quickly, I would suggest a non-equity alternative. 

5. Personal loan

Unsecured personal loans typically range from $1,000 to $100,000 with fixed interest rates and repayment terms of two to seven years. You do not have to use your home as collateral for the loan, but the trade-off is that your loan likely has higher interest rates than a HELOC or home equity loan. 

To qualify for a personal loan, lenders generally prefer borrowers with good credit and low debt-to-income ratios, though some lenders may accept borrowers with less than ideal credit.

Once approved, you’ll receive a lump sum, which you’ll pay back in equal installments over a set term. You can use a personal loan for several purposes, including consolidating debt, paying for medical expenses, or completing a home renovation.

6. Personal line of credit

A personal line of credit works similarly to a credit card, but it often has lower rates than one. With a personal line of credit, you only borrow what you need when you need it, and you only pay interest on the amount you use.

Because of that, a line of credit is a flexible lending option for ongoing or unpredictable expenses. However, because it’s an unsecured line of credit, lenders typically prefer borrowers with good credit. This is an especially good alternative for people who want more flexible lending options other than a HELOC.

7. Credit card

For smaller expenses, a 0% APR promotional credit card can provide interest-free financing for six to 24 months. The catch is that if you don’t pay off the balance during the promotional period, your credit card reverts back to a much higher interest rate.

To qualify for a credit card, you typically need good credit and a lower debt-to-income ratio. The benefit is that credit cards are unsecured loans, so you won’t risk losing your home. The major downside, however, is that if you aren’t able to pay off your credit card, you put yourself at risk of getting into a high-interest debt cycle.

8. 401(k) loan

A 401(k) loan is a unique alternative to a HELOC because you borrow money from yourself by taking money out of your 401(k) as a loan. You do have to pay interest on what you borrow, but the downside is that you’ll miss out on investment growth and may face taxes and penalties if you can’t repay it on time.

Not all employers’ retirement plans offer a 401(k) loan option, so in order to qualify for one, it has to be available to you. The IRS has caps on the amount you can borrow. The maximum you can take out is generally 50% of your vested balance or $50,000, whichever is less.

While a 401(k) loan doesn’t put your house at risk because your house is not collateral for the loan, it can put your future retirement at risk if you aren’t able to pay the loan back.

Generally, I recommend equity financing for larger loan amounts that are used to improve your home. In these cases, the money used can potentially increase the value of the home and the interest is tax deductible.

If the amount needed is smaller or short-term and used for another purpose, I suggest looking into non-equity financing options. Either way, it’s important to ensure that the payments fit into your budget and long-term goals (if applicable) and have a plan to pay off the debt. 

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