Best Home Equity Sharing Agreements

A shared equity agreement allows you, the homeowner, to pull equity from the home in cash without taking out a loan. In return, the investing company gets a percentage of the future value of your home. The company collects its equity share when you buy out the agreement or sell the property.

There are two repayment models that most home equity sharing companies follow:

1. You pay back the initial amount borrowed plus a predetermined percentage of any appreciation
2. You pay back a predetermined percentage of the new appraised value of the home

Contract terms may last 10 to 30 years. Should your home lose value during the contract term, the investing company shares in the loss. The amount you repay will be less than what you’d owe had the home maintained the same value throughout the term.

Companies advertise you can get up to a specific amount through a home equity sharing agreement. But the real amount you’ll receive is determined by a combination of factors: 

• Your home’s current value. The more your home is worth, the more money you can access. 
• Your remaining mortgage balance. Equity is the difference between your home’s current value and your remaining mortgage balance. If your home is worth $500,000 but you owe $300,000, your equity is $200,000 or 40%. 
• The company’s maximum loan-to-value (LTV) ratio. Each company has its own maximum LTV ratio you need to meet to qualify for a home equity sharing agreement.
• The length of the investment. Many home equity sharing agreements last 10 to 30 years. Longer terms may allow you to access more funds, but you’ll be sharing a portion of your home’s appreciation for longer.
• Your credit score. Your credit score will also determine your maximum borrowing limit. Many home equity sharing companies have credit score requirements as low as 500, but you’ll stand the best chance of borrowing the maximum amount if you have excellent credit.
• How you use your property. Many home equity sharing companies will only invest in primary residences—investment properties and second homes don’t count.

Getting estimates directly from lenders is the most accurate way to know how much you could get.  

There are some common fees you should know about before getting a home equity share agreement. These can include origination or investment fees, appraisal fees, and closing costs. 

• Closing costs. These fees cover the cost of processing your agreement and can vary by company.
• Appraisal fees. You’ll need to pay for a home appraisal to determine your home’s value. These fees can cost anywhere from $299 for a virtual appraisal to $500 to $1,000 for an in-person appraisal.  
• Title charges. These include things like attorney fees and settlement costs. They can cost around $800 to $1,200 depending on your location. 
• Filing fees and government recording fees. Some states and counties require additional fees, which can cost anywhere from $370 to $1,000.
• Equity is being shared. This is the percentage of your home’s future value that the home equity sharing company will receive once your investment term expires or you sell the home. While you don’t pay this cost upfront, you need to understand how it will impact your future finances.

Ask yourself these questions to help you narrow down which one is best: 

• Which company can provide me with the necessary funding?
• Does the length of the contract fit my timeline?
• Do I meet the eligibility requirements?
• Can I get an estimate without affecting my credit scores? 
• Does the company have limitations on the use of funds?
• What are my responsibilities as the homeowner during the contract?
• Does the company put a cap on buyback costs?
• Will I pay a prepayment penalty to buy out the agreement early?
• Does the company charge any other fees? If so, will I need to pay them out of pocket?
• Does the company impose any restriction periods that might affect buyout costs?