What Is a Home Equity Investment?

If you’re considering tapping your home equity, there are various ways to do it. However, your options may be limited if your credit score is low or your earnings are inconsistent. In these scenarios, a home equity investment is an option.

These investments allow you to sell a portion of your home’s future value in exchange for a lump-sum payment today. There are no monthly payments or interest charges; instead, you’ll buy out the investor’s equity share before the end of the term.

You can receive estimates from the companies below with a soft credit check to compare offers or learn more about these investments below the table.

What is a home equity investment?

A home equity investment is a strategy for turning your home’s equity into cash. Also called home equity sharing agreements, these allow you to sell a portion of your home’s future value in exchange for a lump-sum payment today.

While the investor will take claim to the portion of equity you’ve exchanged, they won’t hold any ownership stake, nor will they be added to your home’s title. You’ll eventually buy them out in cash after a certain period or when you sell the home or refinance.

The major benefit of a home equity investment is that it comes with no monthly payment or interest costs, while home equity loans (HEL) and home equity lines of credit (HELOCs) do. These investments also have less stringent credit and income standards than other home equity products.

Here’s how these three home equity products measure up:

	HEA	HEL	HELOC
Min. credit score	500	620	Mid-600s
Min. income	None	Yes, varies	Yes, varies
Monthly payments	None	Yes	Yes
Interest rates	None	Yes, usually fixed	Yes, usually variable
Terms	10 – 30 years	5 – 30 years	10 – 20 years

See more in our guide: HEI vs. HELOC.

How it works

The basic premise of a home equity investment is simple: An investor gives you a set amount of cash today—say $30,000—in exchange for a percentage of your home’s equity in a set number of years—say 20%. 

This typically means paying more for quick access to cash in the long run because you’ll likely pay more than $30,000 back once your home appreciates. Still, it offers a way of accessing your home equity without increasing your debt load.

Essentially, a home equity investment limits how much money you stand to gain from your equity, which increases as your home’s value rises and as you pay off your mortgage loan.

Here’s a general look at the home equity investment process:

1. The investor will send out a third-party appraiser to determine the current value of your home. Typically, the investment company will make a valuation adjustment (i.e., lower the appraised value of your home) to protect themselves in the event of depreciation. In some cases, they may also place a cap on how much you would owe if the home appreciates significantly.
2. The company will make an offer. This should include how much cash you qualify for upfront, how much of your equity will be shared, and the repayment terms. You can typically expect to buy out the investor within 10 to 30 years.  
3. You enter the agreement and pay closing costs. You will typically need to cover the costs of the appraisal, an origination fee, and various third-party expenses. 
4. You get a lump-sum cash payment. You’re free to spend this money however you like.
5. At the end of your term (or earlier if you choose), you will pay the investor their share of your equity, based on the home’s current value at that time. This effectively buys them out and returns all your home equity to you.

Depending on which investor you go with, you may pay back the initial cash amount plus a predetermined percentage of equity, or you may simply pay the company only the predetermined percentage. 

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Home equity investment example

See below for an example of how a home equity investment would work if your home gained value or lost value over time. Keep in mind: The exact numbers will vary depending on your home, location, equity, and the investor you choose to go with.

	Gained value	Lost value
Starting value	$500,000	$500,000
Valuation adjustment	2.50%	2.50%
Adjusted value	$487,500	$487,500
Value at repayment	$587,500	$387,500
Equity shared	20%	20%
Principal funding amount	$25,000	$25,000
Amount owed	$45,000	$5,000

In most cases, you’ll need to pay the amount owed at the end of your repayment term or when you sell or refinance your house. One home equity sharing company—Unlock—actually allows you to make partial buyout payments, which lets you spread out your repayment over time.

Reviews of home equity investment companies

Check out our reviews of highly-rated home equity investment companies to find the best terms.

Hometap: Best overall

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Editorial rating: 4.8/5

• Features a quick, simple application process
• Offers flexible qualification criteria
• Provides prompt investments

Hometap has a quick and simple application process. It provides flexible qualification criteria that broaden its reach. Its efficiency in disbursing funds makes it a top choice for those looking for timely equity investments.

Point: Best for longer terms

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Editorial rating: 4.6/5

• Borrow $25,000 to $500,000
• Accepts credit scores as low as 500
• Check your offer with a soft credit check

Point’s home equity investment is more widely available than most of its competitors but is still only available in 23 states. Its minimum credit score requirement of 500 is the lowest of all the companies we reviewed, making it accessible to more homeowners. There are no limits on how you use your funds and Point doesn’t dictate what you can do with your home during the term.

Unlock: Best for partial payments

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Editorial rating: 4.5/5

• Provides transparent and efficient process
• Helps homeowners access equity with minimal hassle
• Offers flexible repayment options

Unlock stands out due to its exceptional services in the home equity investment space. It provides a transparent and efficient process that helps homeowners access their equity with minimal hassle. The company is also popular for its flexible repayment options, making it the best option for those who want to make partial payments during the term.

Pros and cons of a home equity investment

As with all financial products, there are both pros and cons to consider before agreeing to a home equity investment. 

The upsides are that these agreements typically have lower credit score requirements than other equity products, and there are no monthly payments or interest costs. You also typically don’t need to meet any minimum income threshold. 

There are drawbacks, though. For one, you could end up losing out on significant wealth if your home appreciates in value considerably. You also typically need a large share of equity to qualify, and you’ll need to cover a variety of upfront fees.

Pros

• Minimum credit score requirements are low compared to other home equity products

• No monthly payments

• No interest charges

• No minimum income requirements (good for self-employed professionals)

• You get a lump sum cash payment you can use for anything

• The investor shares in the depreciation of your home

Cons

• You could lose out on significant equity if your home increases in value

• You typically need substantial equity in your home to qualify

• Various closing costs and fees

• Not available in every state

Expert take

Crystal Rau

CFP®

A home equity investment has a lot of unknown variables in terms of the true cost. One of the benefits of purchasing a home is letting that home equity grow over time simply through just holding onto the property. A home equity investment would eat into that time you spent, and if you’re using the funds to make improvements, those improvements will just make your equity grow.

Is a home equity investment a good idea?

There’s no hard-and-fast answer to this question. While a home equity investment can be a wise move for some homeowners, it may not be the best choice for others. The right strategy really depends on your finances, goals, property, and long-term plan as a homeowner.

For example, a home equity investment might be smart if you need cash but can’t handle the monthly payments that come with a home equity loan or your credit score won’t qualify you for a HELOC.

On the other hand, it might not be the wisest move if you’re in a particularly high-value housing market. Should your home appreciate significantly, you may pay the investor much more than you’d spend on other financial products—particularly low-interest options like home equity loans or cash-out refinances. 

The only instance in which I would consider a home equity investment is when funds are needed for an exceptional need, like medical, disability, or basic living expenses. However, the homeowner must understand that nothing may be left when they sell or pass away.

Crystal Rau

CFP®

How to get a home equity investment

There are many home equity investors to choose from, so shop around before deciding who to sign your agreement with. You should consider customer ratings, fees, eligibility requirements, repayment terms, and geographic eligibility.

Our team compared several of these companies based on these factors to determine which were the best for different homeowners. Check out the best home equity sharing companies based on our research.