Not a loan
Home Equity Agreements
Cash today for a share of what your home is worth later. No monthly payment, no income check, and credit down to 500. It is also the most misunderstood product I offer, so here is the whole thing.
Somebody has probably told you to "never sell equity in your home." Usually that person has not read the numbers.
A home equity agreement is not a loan and it is not a scam. It is an expensive, flexible tool that is exactly right for a small number of situations and wrong for most. I will tell you honestly which one you are.
How it works
An investor gives you a lump sum now. In exchange they take a share of what your home is worth when you sell, refinance, or reach the end of the term.
No monthly payment. No interest bill arriving. Nothing to budget for.
| Amount | $50,000 to $600,000 |
| Maximum | The lesser of $600,000 or 25% of your home's value |
| Home value | $200,000 to $5,000,000 |
| Minimum credit | 500 |
| Income, employment, DTI | Not checked |
| Monthly payment | None |
| Prepayment penalty | None |
| Time to close | About five days |
| Age requirement | None |
The share, in plain arithmetic
The share is about double the thickness of the investment.
Take $100,000 against a $1,000,000 home. That investment is 10% of the value, so the investor's share of future value is about 20%.
Read that again, because this is the part people miss: it is a share of the full future value, not of the growth. If your home is worth $1,200,000 when you exit, the share is calculated on $1,200,000.
There is a safety cap of 17.99% a year, compounded monthly, so there is a ceiling on the worst case.
What it costs, stated properly
There is no interest rate, so the honest way to judge it is the equivalent annual cost, and that depends entirely on how long you hold it.
| You exit in | Roughly equivalent to |
|---|---|
| Year 1 | 25.8% a year |
| Year 5 | 15.6% a year |
| Year 10 | 7.5% a year |
Plus an origination fee of 4.99%, with all-in costs around 6.25%.
This is the opposite of a loan. A mortgage is cheapest if you pay it off early. This is cheapest if you hold it for a long time. Anyone who is going to sell in two years should almost certainly not do this.
When it is genuinely the right answer
No payment is the point. If your budget cannot take another monthly payment, or your debt-to-income ratio already blocks every loan, this sidesteps both. There is nothing to count.
Your credit is in the 500s. Very little else reaches down there.
You are worried about values falling. The investor shares the loss. A loan will not do that for you. On a house you think may be near the top of its market, that protection has real value.
You are under 62. A reverse mortgage has an age requirement. This does not.
You are trying to stop a foreclosure. Fast, no payment, and credit is barely a factor. In that specific corner it can save the house.
When it is the wrong answer
- You are selling soon. Year one is brutal.
- You qualify for a HELOC. Then take the HELOC. It is dramatically cheaper. HELOCs.
- You need more than 25% of your value. This will not get you there.
- You want to leave the house to your children unencumbered. Explain this one to them first.
How I actually use it
As one of five options, never as the lead and never as a last resort.
When someone calls about pulling equity, I price all five: a HELOC, a cash-out refinance, a closed-end second, a reverse mortgage if they are old enough, and this. Then I show you the five side by side and you pick.
Most of the time this one loses. When it wins, it is usually because of the no-payment rule or the credit floor, and in those cases nothing else was going to work at all.
Let's price all five and see
Questions people ask
Is a home equity agreement a loan?
No. There is no interest rate, no monthly payment and no amortisation schedule. An investor buys a share of your home's future value. That distinction matters legally and it matters to your debt-to-income ratio, because there is no payment to count.
How much of my home do they take?
The share is roughly double the thickness of the investment. Take $100,000 against a $1,000,000 home and the investment is 10% of the value, so the share of future value is about 20%. And it is a share of the full value at the end, not just the growth.
What does it actually cost?
It depends entirely on how long you hold it. The investor's own figures put the equivalent annual cost at roughly 25.8% if you exit in year one, about 15.6% at year five, and about 7.5% at year ten. There is a safety cap of 17.99% a year. So it gets cheaper the longer you keep it, which is the opposite of a loan.
What credit score do I need?
500. There is no income check, no employment verification and no debt-to-income test. That is why it reaches people nothing else will.
What if my home loses value?
The investor shares the loss. That is real downside protection and it is the genuine advantage over borrowing. A loan does not care what your house is worth; this does.