Are you considering a home equity investment company to unlock the equity in your home? There are several entities to choose from, and it can be challenging to determine which is best.
But don’t fret. In this comprehensive guide, you’ll learn more about what things to consider when choosing a home equity investment.
What Is a Home Equity Investment Company?
Home equity investment companies offer shared-equity agreements, sometimes called “home co-investments”. These unique arrangements allow homeowners to unlock a portion of their equity without taking on more debt. Instead, the investor gives the homeowner a cash payment today in exchange for a share in the future change in the property value. No loans or monthly payments are required.
Furthermore, there are generally no restrictions on how the cash payment (or co-investment) can be used. You can pay off high-interest debts, complete home improvement projects, boost your retirement fund, invest in your business, purchase a second property, cover college tuition for a loved one or invest more to build wealth.
The homeowner will have a set period to determine if they want to sell the home or buy out the contract. When the agreement ends, the investor receives an amount equal to the original co-investment plus (or minus) their share of your home’s value increase (or decrease).
Is a Home Equity Investment a Good Idea?
Generally, home equity investments are not recommended unless you intend to stay in your home for at least five years. They could also be ideal for self-employed individuals who could encounter difficulties when applying for traditional home equity loan products or homeowners with tight budgets who do not want to incur additional debt.
Things to Consider When Choosing A Home Equity Investment Company
For starters, you want a reputable home equity investment company, like Unison that we will use as an example, to ensure you receive a world-class experience and co-investment that meets your needs. Also, keep these other factors in mind.
Availability
Is there a home investment company currently available in your state? You will need to consider a company that offers services in your state. As an example, Unison currently operates in Arizona, California, Colorado, Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, Washington, D.C. (District of Columbia) and Wisconsin.
Investment Amount
How much funding is available through a co-investment? Depending on the amount of cash that you are looking to get from the investment, you will have to determine the minimum and maximum amounts each company offers.
For example, Unison offers co-investments of up to 17.5 percent of the current value of your home, ranging from $30,000 to $500,000. However, most co-investments are far less than the maximum allowable amount.
Share of Loss
Under what circumstances does the home equity company share in losses? As with every investment, you need to evaluate the risks of losses. Look into the agreement terms to check what happens in the case your home goes down in value.
As an example, Unison shares in both the future appreciation in your home price and the losses if your home loses value. However, Unison will not share in any losses if you sell your home within the first five years of the agreement, or if you elect to buy out Unison before the end of the 30-year term.
Investment Term
How many years can you use the funds before paying the investor? Different co-investment companies offer different maximum term lengths. With Unison, you’ll have 30 years to settle your investment.
Credit Scores and Other Requirements
What are the eligibility criteria to qualify for a co-investment? You will need to understand what each company will require from you to proceed with the agreement. Here’s an example of the co-investment company Unison criteria.
- Eligible property types: Owner-occupied primary residences, including single-family homes, condominiums and townhomes (some second homes are also eligible for co-investments)
- Minimum Income requirements: none (note: Debt-to-income requirements can vary based on credit score)
- Minimum credit score: middle credit score of 620
- Minimum amount of home equity: 25 percent (could vary based on your credit score)
Fees and Costs
What fees and costs are associated with the home equity co-investment? There’s usually a transaction fee to cover the costs of originating the co-investment.
For example, Unison charges a transaction fee of 3 percent of the investment amount to seal the deal. This amount is deducted from the co-investment at closing, so you won’t have to come out of pocket.
There are also third-party costs associated with the closing, including appraisal, title, government recording and transfer charges, to be mindful of. You will get a detailed estimate before closing.
How to Estimate How Much Equity You Could Take
Are you ready to convert your equity to cash and start living life on your terms? In that case, a co-investment from a home equity investment company like Unison could be ideal.
Use Unison’s online calculator to determine how much you potentially qualify for. It only takes two minutes, and you’ll have the information you need to make an informed decision.
