So you’re a homeowner, and you need money — maybe a lot of money. Many of us are in that same boat these days.
If you’ve owned your home for a while, it’s probably gone up in value. Maybe you’d like to tap into your home’s value to get some cash — but you’re not excited about the prospect of having to make monthly payments on a home equity loan or a home equity line of credit. Or maybe you don’t qualify for one.
But there’s a new option that you may not have heard of — a home equity investment.
What’s that, you ask? A company called Hometap will invest in your home, giving you a lump sum of money in exchange for a share of its future value.
The best part: Because you’re not taking out a loan, you won’t have to worry about the burden of making monthly payments. Instead, when you eventually sell your home or settle your investment, the company gets its share of the proceeds.
Tap Into Your Home’s Value (Without Selling or Taking Out a Loan)
Here’s a simplified version of how this works:
Let’s say you own a home that’s currently appraised for $250,000. If Hometap agrees to pay you for a 10% stake in your home, it sends you 10% of the home value (after deducting 3% in closing fees) within four days of closing. Homeowners can request an investment up to 30% of the home value or $300,000, depending on their financial goals.
Just like a home equity loan, you can do whatever you want with the money — pay your bills, renovate your home, pay off debts, fix your roof, start your own business, or go back to school.
Sometime in the next decade, you sell your home. Let’s say you sell it for $300,000; Hometap gets an agreed-upon percentage of the new home value.
So what happens if the value of your house goes down instead of up? Because they’re investing alongside the homeowner, Hometap shares in the depreciation, too.
“If the value doesn’t go up and we make less, we make less,” the company says on its website. “That’s the risk we take, and that’s for Hometap to worry about, not you.”
A Few Things to Keep in Mind
Interested? Here are a few things to keep in mind:
- You need at least 25% equity in your home. In order for Hometap to invest in your home, you’ve got to have equity to begin with. Home equity is the current market value of your home, minus what you owe. When you make your mortgage payment each month, and as your home’s value increases, you’re building equity.
- Hometap will invest in your home for a maximum of 10 years. If you haven’t sold your house by then, you’ll need to pay Hometap back some other way — with your savings, by refinancing your mortgage, or by taking out a home equity loan or personal loan. How much would you owe Hometap? That would be based on what percentage of your home that the company has a stake in and how much your home is worth at the time.
- You pay a 3% servicing fee that covers things like title, escrow and appraisal costs. These closing costs are deducted from the total sum of investment dollars, so you have no out-of-pocket costs.
- Hometap is currently operating in California, Florida, Maryland, Massachusetts, New York, North Carolina, Oregon and Virginia. It’s working on becoming available to homeowners in Michigan, Arizona, Minnesota, Illinois, and New Jersey , and it’s planning to expand into other states across the country.
- Hometap invests in single-family homes or condominiums, too. Hometap does not invest in vacation homes, as the homeowner must live in the residence for more than half the year.
How to Get Your Money in as Little as Three Weeks
The whole Hometap process is designed to be as easy for you as possible. From start to finish, you can have money in-hand in just three weeks. After you close on the investment, your funds are wired in four days.
To get started, request a quick online investment estimate so the company can see if this is a good fit for you and your property. Then, a Hometap investment manager will walk you through the rest and answer any questions you have. Hometap will arrange for a third-party appraiser to come out and determine your home’s value. You don’t need to do anything.
Then, once everything’s settled and signed, you’ll get your money transferred to you within four days. Easy. And best yet: You don’t have to worry about making monthly payments or accruing interest because it isn’t a loan. .
If you’re house-rich but strapped for cash — and a whole lot of us are right now — see if this is a good option for you.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He’s a homeowner, and he’s always in need of more money.