How to Settle an HEA With a Home Sale 

Key Takeaways

• Selling your home is one of the most common ways for homeowners to settle a home equity agreement (HEA). 

• Your home’s sales price will help determine the amount needed to settle your HEA. 

• You don’t have to sell your home to exit your HEA. Alternative ways of settling include obtaining funds through a traditional home equity loan or home equity line of credit, a cash-out refinance or refinancing your Unlock HEA into a new one. 

Whether you already have a home equity agreement (HEA) or are just learning about it, you may have questions about how to exit your HEA. Settling an HEA involves buying back your equity from your HEA provider. You can settle your HEA anytime during your term – which varies from 10 to 30 years depending on the provider. However, most HEA or home equity investment (HEI) providers require homeowners to settle by the time they reach the end of their term. 

There are a variety of ways to settle an Unlock HEA, but the most common option for many of our homeowners is through a home sale. Here, we’ll walk through the process, and review when it makes sense to settle your HEA in this way.  

Settling Through a Home Sale

If you sell within, or at the end of your HEA term, you’ll buy back your equity in one lump sum.  Unlock will share in the home’s current value according to the Unlock Percentage you agreed to when you signed the agreement. With Unlock, there are no prepayment penalties, which means you won’t pay a fee if you decide to buy back your equity in full before your term ends.  

The process: 

Settling your Unlock HEA when you sell your home is a simple, straightforward process. 

• Notify Unlock. The first step will be to contact Unlock and let us know you’ll be selling your home. It’s helpful to do this as soon as you make the decision to sell your property.  

• Determine the basis for your Ending Home Value. This is typically equal to the sale price of your home to a bona fide, arms-length, third-party buyer, meaning you should sell your property on the open market through the local Multiple Listing Service or MLS. The amount does not include any non-cash considerations (such as a seller concession) or deductions for closing costs, taxes, documentary fees, mortgage loans, other liens or secured loans, sales commissions or appraisal expenses. If Unlock believes the proposed Gross Sale Price differs materially from the market value of the Property, we may order an appraisal to confirm the Ending Home Value.  

• Determine any value from home improvements. Unlock’s HEA contains a provision – called an Improvement Adjustment – to support homeowners who make home improvements during their HEA term.  Our Improvement Adjustment allows homeowners to keep the value that significant home improvements add to your home, rather than sharing that appreciation with Unlock. To be eligible for an adjustment, you must have made material improvements that increased your home’s value by at least $10,000. The value of your improvements will be determined by an appraisal.  

• Determine any adjustments for maintenance needs. Maintenance is critical to preserving and improving your home’s value.  If you fail to maintain your property in good condition (subject to normal wear and tear), Unlock may impose a Maintenance Adjustment to protect itself from any losses that may be incurred as result of any damages. Just as home improvements can reduce your ending home value, a maintenance adjustment can increase it to cover instances when your home may have been worth more if properly maintained. Unlock will not apply a Maintenance Adjustment unless the property value has been negatively impacted by $10,000 or more. The amount of the Maintenance Adjustment is determined by independent third-party appraisals, inspections, and repair estimates. 

• Calculate Unlock’s share. As noted, your home’s sales price will provide the basis for your “ending home value.” From that, we will subtract any improvement adjustment and/or add in any maintenance adjustment. The resulting number is multiplied by the percentage you agreed to share with Unlock when you closed on your HEA, to determine your buyout amount. Keep in mind that this calculation is subject to our Annualized Cost Limit (ACL), which serves as a cap on the amount Unlock will receive during settlement.  

Remember, too, that you can get the estimated amount required to settle your Unlock Agreement at any time by consulting your account dashboard or contacting the Customer Success team. 

Does it Make Sense to Settle Your HEA by Selling Your Home?

Selling your home, at any time, for any reason, is a big decision and a major step. You may be ready to move if you want to downsize, live closer to family, enjoy a better climate, take a new job or make a lifestyle change. Whatever the reason, the decision to move should involve thorough planning and careful budget analysis to understand exactly what your expenses will be – both in terms of monthly housing costs and actual moving expenses. 

If you have made the decision to sell your home, you’ll use part of your sale proceeds to settle your Unlock share, avoiding the need to obtain other financing or dip into your savings. 

However, selling your home doesn’t always make sense. Sometimes, people who originally planned on selling at a specific time change their minds for various reasons. Selling also may not make sense in certain market conditions. If you try to sell your home during a buyer’s market, when prices are lower, it may take longer to sell, and you may find it challenging to secure a good offer. The share of proceeds you owe to Unlock will be lower, but your overall proceeds from the sale will be lower, too. 

If you sell during a seller’s market, your home may sell more quickly and for a higher price. You’ll receive more proceeds – and your Unlock share will be higher, too. 

Alternatives to Selling Your Home

As mentioned above, there are options to settle your HEA that don’t require you to sell your property. They include:  

• Home equity loan (HEL) or home equity line of credit (HELOC). Some homeowners may be able to qualify for one of these loans at a favorable rate and use those funds to settle their HEA.  

• Cash-out refinance. Depending on the individual’s situation and the housing market at the time and interest rates, a cash-out refinance may be an option for some homeowners.  

• Using cash on hand. Homeowners can use cash or savings to buy back their equity. 

Weighing the Options

You certainly don’t need to sell your home to settle your HEA, but you’ll want to weigh the pros and cons of each option. If you’re looking at alternative financing options, you’ll need to consider interest rates and, for options like a HELOC or HEL, the interest rate you can obtain and the monthly payment that will go with those loans. Cash-out refinancing usually only makes sense if you can obtain a significantly lower interest rate than you have on your existing mortgage. Homeowners who secured ultra-low mortgage rates several years ago likely will not want to give up those rates for a higher rate on a new mortgage. 

The good news with Unlock is that some homeowners also have the option of buying out their original agreement through an Unlock Refi. This alternative settles your original Unlock HEA and allows you to take on a new Unlock HEA. Depending on your needs, goals, and current equity position in your home, you may be able to receive a larger equity investment. 

Conclusion

Settling your HEA with a home sale is one of the most common way homeowners exit their HEAs. The process is simple and straightforward. But it may not be right for everyone. If you are not ready to sell your home when your Unlock HEA term comes to a close, know that you have several options for settling.