The Pros and Cons of Home Equity Sharing 

Key takeaways: 

• Home equity sharing is a relatively new option for homeowners who have a lot of equity in their properties but need access to cash. 

• Like all financial products and services, home equity sharing has pros and cons. 

• It’s important to do as much research as you need to feel comfortable taking such a big step with your home. 

Home equity sharing is a way for homeowners to access their home equity without having to take out a loan or sell their home. In a home equity sharing arrangement, also known as a home equity agreement (HEA), a homeowner receives a lump sum of cash in exchange for a portion of their home’s future value. This type of financing doesn’t carry interest fees or monthly payments and has more flexible qualification requirements than loan products (like a home equity line of credit or home equity loan) do. Home equity sharing, however, isn’t for everyone. Here, we examine the benefits and downsides of this approach. 

As a reminder, your home equity is the value of your home minus anything you owe on it. So, if your home is worth $500,000 and you have a $300,000 mortgage, you have $200,000 of equity. Traditionally, it’s been hard for homeowners to access their equity. Yes, there are plenty of products that banks and other financial services companies have developed, like cash-out refinances and home equity loans help homeowners to pull equity from their homes.  

However, those products typically have stricter qualification requirements and can be time-consuming to apply for, however. They also represent additional debt, which many Americans do not want to take on and have steep borrowing costs when interest rates are high, like they are now.  

What is a home equity sharing agreement? 

Drawbacks like the ones listed above are why companies like Unlock created a different way for homeowners to access their equity. Unlock is one of handful of providers in the home equity sharing space. You can check out a detailed overview of Unlock’s home equity agreement process, but in a nutshell, here are the basics of these agreements:  

• A provider – like Unlock – purchases a portion of the future value of your home. In exchange, you get cash proceeds up front.  

• You still live in your home as long as the agreement is in place, and you are responsible for the same obligations you had before entering into the agreement, such as your mortgage, property taxes and homeowners’ association fees. Importantly, you are also responsible for upkeep and maintenance.  

• You can generally end the agreement any time during the term by buying your equity back. This often happens when you sell the property.  

Pros of home equity sharing agreements 

As we noted above, home equity sharing agreements, or HEAs, were developed to address flaws in the existing products that let homeowners tap their equity. That means they have a lot of plusses, especially when compared to other options. 

• Home equity sharing agreements are not debt. Unlike a home equity loan or home equity line of credit, you are not adding another bill to your monthly expenses. 

• These agreements do not have interest charges. In mid-July 2024, the average rate for a refinance was 7%. If you are one of the vast majority of Americans who have a rate much lower than that, why refinance into one that’s higher? 

• You don’t need an excellent credit score. Since the agreement is based on the value of your home, not your credit profile, you may be able to qualify for an HEA with a credit score as low as 500 (depending on the provider).  

• You may have heard that home equity sharing agreements can be settled only by buying back your equity all at once. But Unlock also allows you to make partial payments to buy back some of your equity throughout the term of the agreement.  

• Getting a home equity sharing agreement means immediate cash for any reason: paying down high-interest-rate debt, financing an education, making home improvements, you name it. (Unlock does have some qualifications for customers with credit scores lower than 549, however.) 

Cons of home equity sharing agreements 

Home equity sharing agreements are not right for everyone. Here are a few reasons you may want to think twice about these financial products. 

• A home equity sharing agreement, or HEA, is probably better for people who plan on staying in their home for a while. Because the amount of cash you’re entitled to is based on the future price of the property, you need to give the price time to appreciate. That may not be a full 10 years (which is how long many HEA terms are) — but it’s probably not just one or two, either.  

• In the same vein, you need to have a decent amount of equity built up in your home. Most providers of HEAs require that you have at least 30%.  

• A home equity agreement will impact your heirs. If you pass away during the term of your agreement and aren’t survived by anyone who is a party to the agreement, your heirs will be required to settle your agreement either by selling the home or through a lump sum payment. It’s important to inform your heirs if you decide to enter into a home equity agreement.  

• If you aren’t sure exactly how much of your equity you want to use, or you think you might use it over time, you might be better off with a home equity line of credit. With that product, you only take cash from your credit line when and if you need it. 

• If you need only a small amount of cash, a home equity sharing agreement is probably not a good fit. For example, Unlock’s agreements require that you take at least $30,000 of your accrued equity.  

• Finally, home equity agreements aren’t yet available to consumers in all states. If you are interested, keep an eye on our website as we continue to grow.  

Conclusion 

Home equity agreements, or home equity sharing agreements, are effective and powerful tools that help solve a real problem for millions of Americans who have a lot of wealth on paper, but no way to access it. Agreements like the ones offered by Unlock are flexible, don’t carry interest charges, and don’t add to your debt load.  

Still, they aren’t right for everyone. They’re best suited for people who plan to live in their homes for a while and who need a decent amount of cash up front.