As your home increases in value, you could be tempted to tap into the equity. In fact, many homeowners seek out options that allow them to convert equity into cash, to perform home improvements as an example that could increase the value of your home. But many home equity products often come with monthly principal and interest payments that could stretch your budget thin.
Assuming you don’t want to add more debt to your plate, there’s a better way to unlock your home’s equity. It’s through a co-investment, which could get you a sizable amount of cash to pay off debt, retire early, renovate your home or meet other financial goals without having to take out a loan.
Access Your Home Equity
How to Tap into Your Home Equity Without Taking a Loan
Many homeowners pull equity out of their home with a loan product, like a home equity loan, home equity line of credit (HELOC), or cash-out refinance. But if you don’t want the added debt, a shared equity agreement that gets you cash through a co-investment could be a better fit.
What is a Shared Equity Agreement, and How Does It Work?
A shared equity agreement is an agreement between an investor and a homeowner. The investor gives the homeowner a lump sum of cash in exchange for a portion of the home’s future value.
Here’s how it works:
- The homeowner finds an investor that’s willing to enter into a shared equity agreement and offer a co-investment.
- The homeowner and investor arrange to have the property appraised to determine its current value.
- The investor creates a shared equity agreement that outlines the terms of the arrangement.
- The homeowner reviews the closing documents, and both parties sign to make the agreement effective.
- The homeowner receives the co-investment.
At the end of the agreement term, the homeowner pays the investor an amount equal to the original co-investment plus a share of any increase in the property value. (If the property value decreases, the investor receives the original co-investment amount minus a share of the loss).
Access Your Home Equity
Is a Shared Equity Agreement a Solution for You?
A shared equity agreement could be a good fit if you want to cash out your equity without acquiring more debt. Some homeowners who have trouble getting approved for traditional home equity products also turn to co-investing to unlock the equity in their homes.
There are also perks to consider when deciding if a shared equity agreement is most ideal. For starters, you won’t have monthly payments or interest rates since this is not a loan. Instead, the cash is yours to use for the term of the agreement. When the agreement ends, the investor gets an amount equal to the original co-investment plus a share of your property’s increase in value. (And if your home drops in value, in most cases, the investor also shares in the losses with you).
Plus, you can use the cash for almost anything. Some use the proceeds to pay off high-interest debt and free up income to live the life they’ve always dreamed of. Others use the money to retire or fund home renovations that could increase the property value.
You may also find that it’s easy to qualify for a co-investment with a low-middle FICO score, and the application process is relatively simple. Perhaps the most enticing benefit is that, in most cases, the investor will also share in the losses if the property depreciates in value over time.
An Example of a Home Equity Sharing Company
Unison is a reputable company that offers shared equity agreements. If you qualify for Unison HomeOwner, you could receive a co-investment of up to 17.5 percent of your home’s value. The minimum and maximum investment sizes are $30,000 and $500,000, respectively.
Unison gets a share in any future appreciation or depreciation of your home in exchange for the co-investment. You will retain full ownership rights to your home, but the investor will place a lien against your property.
The agreement lasts for 30 years, and you won’t make any monthly payments during this time. When the agreement ends, you will have the option to sell your home or buy Unison out. Either way, Unison will receive the original co-investment amount plus a share of any increase in the home’s value. If the property has decreased in value, Unison will share in the losses. Unison cannot lose more than the initial co-investment amount.
How You Can Qualify
You could qualify for Unison HomeOwner if you meet these criteria:
- Have a middle FICO score of 620 or higher.
- Have a loan-to-value ratio that does not exceed 75 percent – this amount could be lower if you don’t have excellent credit.
- Have an owner-occupied single-family home, townhome, or condominium – some second homes qualify for the program.
- Hold the property as an individual or joint tenant.
How Much Does It Cost?
The co-investment does not come with monthly principal and interest payments since it’s not a loan. However, at the end of the agreement, you will share a portion of your home’s increase in value. At the beginning of the agreement, Unison charges a 3 percent transaction fee, and you will have to pay certain third-party fees such as the cost of the appraisal and settlement fees.
How To Get Started
Unison makes it easy to determine if you’re a good fit for the HomeOwner program. Here’s a breakdown of how it works:
- Visit Unison’s website.
- Calculate an estimate of how much equity you could potentially access by getting pre-qualified.
- If you potentially qualify, submit an online application or call the toll-free number to get started by phone.
- Upon credit approval, Unison will reach out to schedule an appraisal of your home.
- Review and sign your closing documents.
- Receive your funds in as little as three business days after closing.