Traditionally, using your home equity to get cash meant taking out a loan or credit line. Although useful, these debt products involve monthly payments.
But a new option has emerged, with a handful of companies investing in home equity rather than lending on it. This allows homeowners to leverage their equity for cash without adding another monthly payment.
One such company is Hometap, which offers homeowners a lump sum of cash today in exchange for a share of their home’s future value. But is Hometap the smartest way to tap your home equity?
To help you decide, I’ve evaluated all the top home equity sharing products. I’ll explain exactly how Hometap works, how it’s different from competitors, what it costs, the risks to be aware of, and how it compares to options like HELOCs and cash-out refinancing.
Hometap gives you cash now in exchange for a share of your home's future value, but it's not a simple percentage-for-percentage deal. For example, if your $500,000 home appreciates to $600,000 and you sell after 7 years, you could owe Hometap $120,000 (20% of $600,000) plus fees, even if they only gave you 10% ($50,000) upfront.
The actual percentage you'll owe is based on how long you take to sell or buy out the investment:
- 0-3 years: 15%
- 4-6 years: 17.8%
- 7-10 years: 20%
If your home decreases in value, you could still owe more than you received after factoring in fees. Overall, while Hometap can provide you cash now, they do come at quite the high cost.
- No monthly payment.
- Fast and easy application process.
- Getting an offer doesn't affect your credit.
- Cost can be high if your home's value appreciates significantly.
- There's a forced sale risk if you're unable to pay Hometap after 10 years.
Hometap Basics: How it Works
Hometap lets you tap into your home equity for cash without taking on a monthly loan payment.
To do this, the company invests an agreed-upon amount in your home in exchange for that proportion of its future value.
This is not a home equity loan. When you sell your home, you pay this percentage of the sale price back to Hometap.
Imagine you have a $500,000 home and strike a deal with Hometap to secure $50,000 (10% of your equity) in upfront funds. Then, 10 years later, you sell that home.
Below are two potential outcomes of that situation based on hypothetical housing markets:
| Future Home Value | Hometap Share Amount | |
| 2% annual appreciation: | $609,497 | $121,899 (equals 20% home’s value) |
| 5% annual appreciation: | $814,447 | $162,889 (equals 20% home’s value) |
Hometap investments have maximum terms of 10 years. If you don’t sell your home within that time frame, you’ll pay back the initial investment (based on your home’s appraised value 10 years from the date of the investment) through another source of funds, such as your savings or a home equity loan.
You could be forced to sell if you are unable to obtain the necessary funds to pay off Hometap at the ten-year mark.
Also, note that you’re not simply exchanging the percentage of your home’s value that Hometap invests for an equal percentage of your home’s future value. i.e., you give Hometap 10% now for 10% when you sell.
Hometap takes a larger share, and the longer you stay in your home, the bigger that percentage becomes. For example, if Hometap invests 10% of your home’s value upfront, you’ll owe them:
- 15% if you settle in 0-3 years
- 17.8% if you settle in 4-6 years
- 20% if you settle in 7-10 years
These percentages can vary based on the specific terms of your agreement and how much of your home’s value Hometap invests. But the key takeaway is that Hometap’s share of your home’s future value grows the longer the agreement lasts.
Understanding Hometap’s Payment Structure
There are no interest payments or monthly fees with Hometap. As such, you don’t need to concern yourself with interest rates, as you would with a standard HELOC.
However, it should go without saying that Hometap is not a free service.
As noted in the previous section, you agree to pay Hometap a portion of your home’s future value. So when calculating the costs of this arrangement, you have to think about how much you’ll owe relative to the amount you received, not the total proceeds.
Continuing our previous example, let’s say your home is worth $500,000 today and you use Hometap to secure $50,000 in upfront funding.
If your home appreciated by 2% a year for 10 years, its total value would be $609,497. In that case, you’d owe Hometap $121,899 (based on their on-site calculator).
While you don’t pay interest to Hometap, we can calculate the equivalent annual interest rate on a $50,000 loan, which amounts to $121,899 paid back in 10 years. This rate would be about 9.34%, giving you a clearer picture of the cost of the arrangement over time.
Hometap Costs and Fees
In addition to costs outlined above, there are a few fees to be aware of.
For one, Hometap charges 3.5% of your investment amount — taken out of your initial proceeds — as a closing fee.
Note: The fee was changed from 3% to 3.5% on June 20th, 2024. Despite the change, our calculations throughout this article show a 3% fee. We will update shortly to reflect these changes.
You also have to factor in the following fees (which are not included in our example, as the specific numbers can vary):
- Home appraisal: $300 to $450, on average.
- Title charge: about $700 to $800, on average.
- Government filing: about $350 to $1,000, on average.
Hometap vs. Home Equity Line
Let’s return to our $500,000 home example. This time, let’s say we got a home equity loan for $50,000 with an 8% fixed interest rate. Here’s how that breaks down:
- Initial home value: $500,000
- Loan amount: $50,000
- Loan interest rate: 8%
- Monthly payment: $606.64
- Total paid at the end of 10-year term: $72,796.80
As you can see, assuming the home appreciates at 2%, a home equity loan at 8% interest would save you $49,102.20 over 10 years compared to the Hometap arrangement.
Of course, this assumes you can qualify for a home equity loan and make the required monthly payments.
Many homeowners interested in home equity sharing may not qualify for a home equity loan due to credit score requirements, debt-to-income ratios, or other factors. So, alternative options like credit cards or bankruptcy are being considered as alternatives to a home equity share agreement.
How Hometap Handles Home Renovations
Hometap doesn’t share in any home value changes directly attributable to renovations.
That means if your home value increases by $25,000 or more due to renovations, you can request that Hometap give you a renovation adjustment to exclude that figure from their settlement calculation.
To do this, you’ll need to get a new property appraisal. You’ll also need to hold onto receipts associated with (and photographs of) the renovations.
Let’s look at an example…
Say you have a $500,000 home and get $50,000 from Hometap. Due to market forces, your home appreciates to $609,497 over 10 years. Additionally, you renovate your kitchen, which adds another $50,000 to your home’s value, bringing the market value of your home to $659,497.
You would then request a renovation adjustment from Hometap at the time of settlement, provide the necessary evidence, and get your property appraised.
Your $50,000 renovation appreciation would be excluded from the final calculation, so Hometap’s share is based on $609,497, not $659,497.
Note that your renovations will not be excluded from the agreement if they do not add at least $25,000 in additional value.
Application Process and Eligibility
The process for getting cash from Hometap is fairly straightforward.
First, you request an estimate to see if you pre-qualify. They’ll ask for some information about you and your property. This part takes a minute at most.
Hometap will then prepare an investment estimate using your information. You’ll also gain access to a dedicated investment manager to help you along.
If you like the terms Hometap provides, you’ll fill out a short online application. After that, Hometap orders an appraisal of your home and uses the appraised value to put together your final offer.
Accept the offer, schedule the closing, close on the deal, and Hometap wires your funds to your bank account within a few days.
To qualify, you must own a single-family home or a condominium in a state Hometap operates in.
Hometap is available in the following states as of Mar 2024:
- Arizona
- California
- Florida
- Michigan
- Minnesota
- Nevada
- New York
- New Jersey
- North Carolina
- Ohio
- Oregon
- Pennsylvania
- South Carolina
- Utah
- Virginia
- Washington
Hometap doesn’t have hard requirements for credit score or equity because they evaluate each property independently. However, most of their applicants have scores of at least 600 and hold 25% or more equity in their property.
How Much Cash You Can Get
Hometap lets you borrow up to 25% of your home’s value, with a maximum dollar figure of $600,000.
The percentage of your home’s value you will receive depends on your credit score and current equity in the property.
To determine your home’s value, Hometap sends a third-party appraisal company to your home. Upon settling the investment, Hometap sends another appraiser to determine the final value.
By using third-party appraisers both times, Hometap minimizes the potential conflict of interest of under-appraising the property to claim more appreciation.
Hometap Pros and Cons
Let’s look at the highlights and drawbacks of Hometap.
Hometap Pros
- No monthly payment. You receive cash without constricting your budget.
- Fast process. The application takes under 10 minutes, and you can receive funding in as little as two weeks.
- No firm credit requirement. Hometap says that most of their successful applicants have a credit score over 600, but they don’t have a hard minimum to qualify.
- No credit impact. Hometap doesn’t conduct a hard inquiry, protecting your credit.
Hometap Cons
- 10-year limit. If you don’t sell your home in 10 years, you’ll have to pay back the investment with another source of funds (such as your savings). Long-term homeowners should be careful.
- Forced sale risk. If you can’t pay back the invested amount when the term is up, you could be forced to sell your home.
- Increased payout from your home’s appreciation. If your home substantially increases in value, you’ll pay a very large cost relative to how much you received upfront.
- Availability. Not available in all states.
Learn more about these and other considerations in our guide to the pros and cons of home equity sharing agreements.
Hometap Competitors and Alternatives
Hometap has three main competitors.
- Point. Point offers much longer terms of 30 years (which could be positive or negative depending on how you use your funds), with servicing fees ranging from 3% to 5%. You can access up to $600,000, depending on your home’s value and your equity.
- Unison. Unison also offers 30 year-terms, but the servicing fee is higher than Hometap’s at 3.9%. They cap the amount of cash you can receive at $500,000, but you can only receive up to 17.5% of your home’s value.
- Unlock. Has 10 year (max) terms with a low (500) minimum credit score. Unlock is the only company we’ve reviewed that allows for partial buyback of your agreement prior to the end of the term.
Learn more in our roundup of the best home equity sharing companies.
Key Questions About Hometap
You still pay the agreed-upon percentage of your home’s value, which is larger than what you took out. Your home would have to significantly decrease in value to pay back less than you took from Hometap.
Hometap’s investments are designed to be tax-deferred, so pending an unusual circumstance, you won’t owe taxes as a result of receiving an investment.
You’re still responsible for paying back the full amount of money you owe Hometap.
If you’re the sole homeowner, the obligation to Hometap passes to your estate and the lien stays on your property. If there’s a second homeowner, such as your spouse, the agreement doesn’t change.
If you get divorced following a Hometap Investment, the investment remains in place and the terms are unchanged. If you seek to transfer ownership of the home prior to settling your investment, you have to work with the company to coordinate on any such transfer of ownership.
My Hometap Analysis and Final Thoughts
Home equity share agreements are a very new way of using your home equity to obtain cash.
Two thoughts I have are:
- Using a home equity-sharing company like Hometap can seem attractive because it doesn’t require monthly payments. However, as covered above, even with modest home appreciation of only 2% per year, the overall cost of a home equity agreement like Hometap is significantly higher than a home equity loan with an 8% interest rate. If you can qualify for a home equity loan, it’s generally a much more cost-effective option in the long run despite the burden of monthly payments.
- Your mortgage is the one bill that always gets paid monthly, no matter what. This is why, for most households, their primary residence is their largest asset. So, if you give up an equity stake in your home, what’s your alternative plan to save money over the long term? Is it a 401(k)? An IRA? An HSA?
Overall, home equity agreements are not the cheapest way to receive a large upfront payment today.
Yet, they offer a means to access needed funds for homeowners who may not qualify for traditional loans due to credit issues or other financial constraints. When considering alternatives like carrying significant credit card debt into retirement, bankruptcy, or losing your home, home equity agreements become more viable options.
But if i have too much debt and can’t secure a HELOC OR Home Equity Loan to raise enough cash to pay off the debt(credit ~650, DTE ratio too high)what other option beside Home Equity Sharing is there?
Unfortunately, most of the more attractive lending options are off the table. Hard to say without knowing your goals/situation but always goes back to cashflow. Consider any and all options for improving your income/expenses without the use of debt. Potentially, in a few months, you could get to a place where better lending terms open up.
What happens if both owners die in the time frame of the contract in a equity share agreement. How does that work with and equity share company.
Most often, debt is recouped from your estate when you pass. So, your heirs can either continue making payments as usual. If payments are not made, the home would then be foreclosed upon.
Do you have to sell your home in 10 yrs, isn’t it possible to do a loan mod that paid off hometap and keep your home?
Nope. You don’t need to sell your home, just repay Hometap. Most common way would be refinance the primary mortgage to pay them off.
would I have to pay income taxes on a hometap investment loan?
No. See FAQ:
Hometap’s investments are designed to be tax-deferred, so pending an unusual circumstance, you won’t owe taxes as a result of receiving an investment.
The impact of a Hometap investment on your taxes in connection with a settlement of the investment and/or a sale of your home will depend upon your specific facts and circumstances.
___
Does that answer your question?
can I pay off hometap earlier than 10 years? Lets say in 5 years, will they calculate repayment value based on appraisal at 5 year?
Hi CP.
That’s correct. It’s whatever your home is appraised at at the time of payoff, whether that’s two years or ten years.
I need some clarification on the math please. If my home is worth 325k and Hometap gives me 30% that is 97k and the fees come out for appraisal ,title filing instead of out of pocket correct ? If I sell or refinance and my house and new value is 375k ….home tap would receive 30% of 375k which is 112,500k. Is this their total ? The initial 97k + their profit of 15k ? trying to understand breakdown .Some of these companies give a percentage ( ex:10% current value of 325k = 32,500 ) but take a higher amount ( 16 % of new value 375k = 60k) which is almost 50% more of initial investment, very confusing and if they are almost doubling their investment that is not worth it to me. Just wish these companies would be clear and transparent with this information.Thanks!
Hi DM,
Good questions.
The fees come out of the $97,000 you’d receive, not paid separately out of pocket. So, you’d pay an estimated $2,910 in upfront costs, e.g. only get $94,090
Hometap then takes a percentage of the total home value at the time you close down your agreement. You only know this number, however, once you’ve gone through the application process. This means you may get all the way through underwriting to not be happy with this agreed upon amount. Agree, that I wish these things were simpler and more clear.
What kinds of things are on the application? Will they want bank statements and other documents a traditional line of credit would?
Yes, it’s going to be similar to applying for a home equity line/HELOC with the required paperwork.
What happens if I decide to move from the home I have the Hometap agreement for? Does the agreement simply stay in place? It may be a possibility that I would not stay here forever, but would like the option to rent my home out and move at some point. Thanks so much for what you do, your help is fantastic.
Hi Renee,
If you decide to move prior to 10 years, Hometap will receive its share at closing, similar to how you’d pay off a second lien during closing.
Great Article. I found that after receiving final approval and after reading the terms of closing documents, in order for home tap to protect their small investment in my property, I would have to give up a lot of my majority owner rights. In exchange for the 15% value that we are being given, in 10 yrs we are giving them 20-27%. of our home value. In addition, we have to get approvals from home tap to make renovations or add new liens or loans secured by the property and if you default on your mortgage or insurance, you have 30 days to cure it or else they have cause to take hold of your property. I have discovered a lot of cons in the closing documents that are. making me reconsider doing it. In theory, it seems like a good idea, but not at the cost of me giving up my owner rights.
This is good info! I haven’t closed my deal with Hometap yet, either, but I’d love to see a response to this question you posted!
Your analysis doesn’t show the real costs and makes this seem more attractive than it really is. Hometaps ownership is many points higher than the percentage of loan to home value and ratchets up from 3.3% to over 13% in extra ownership of the home.
Using their own calculator;
On a 5% loan, hometap owns 8.3% of you home value (3.3% premium)
On a 6% loan, hometap owns 10% of you home value (4% premium)
On a 7% loan, hometap owns 11.6 of you home value (4.6% premium)
On a 10% loan, hometap owns 16.7% of you home value (6.7% premium)
On a 20% loan, hometap owns 33% of you home value (13.3% premium)
This yields vastly different final costs than your example to the point of al most misleading.
This actual costs in your example of a $100,000 home, $20,000 loan, appreciating to $130,000 are 59% higher than you show. (Hometaps ownership is $41,166 vs $26,000 your show)
While this may still be a viable loan option for people, more realistic final costs should be provided, unless the intent is merely to advertise for hometap.
Thanks, William.
We did the math before your comment by using a simplified example that didn’t include fees while mentioning these fees later in the article. In hindsight, that was the wrong way to approach it. We updated the article to include calculations of fees upfront, so as not to steer anyone in the wrong direction.
Good comment and thank you!
Is the term “Vacation Home” apply to any secondary home including rentals?
Hi Ricard,
When we originally published this draft Hometap only did primary residence.
They will now do primary residences, vacation homes, rental properties, multi-family homes and condos.
How is this better than a Reverse Mortgage? It appears there are alot of upfront costs for appraisals plural, closing costs, title company fees, etc. How do those get paid?
Reverse mortgages typically pay you a monthly “income” instead of an upfront sum. This structure makes them more popular with retirees who need to supplement their monthly income.
In home equity sharing, you’re getting an upfront sum with no monthly payments going forward, yet the “bill” comes due at the end when you sell or refinance. This structure makes them more popular for those turned down by traditional banks for financing.
One isn’t necessarily better than the other. Comes down to your goals and options.
Hope that helps!
My wife and I are considering this to finish off some big projects on out home, before we sell in 3 years and move. Is this worth borrowing 15k for a 150k home to finish these projects if our home only increases in value 10k or so?
If I understand your questions correctly, it’s not worth borrowing $15K and paying associated fees with HomeTap for only increasing your home’s value by $10K.
Did you mean the opposite? Borrowing $10K for a potential $15K appreciation?
I just went through the process with Hometap and ended up switching to Unlock before closing. There are a few misunderstandings here, also some good information. Hometap’s share on a 12% investment in your home is 24% of the total appraised home value at the end of the agreement when you buy them out. That’s a hefty chunk to fork over, however if you compare to payments and interest on a HELOC or cash-out refi over the same time period, the HEA is often only slightly more total. The obvious benefit is it’s easy to qualify for and no payments. Unlock is slightly less expensive at 22%, plus it allows partial buy-outs. And if you can afford to buy them out in the first three years, it’s not a bad deal. Terms are a little better at Unlock, customer service is a little better at Hometap. Neither look at income and bank statements were not requested for me. They do look at credit score and it may impact final terms, but it’s much more lenient than conventional equity loans. Ending vs. starting appraisals have a big impact. If you don’t have regular monthly income and a great credit score it’s a reasonable option. It’s also not reported to credit bureaus which may also be a benefit.
Appreciate your insights, Diana. Thanks for sharing your experience.
Hi, R.J.
I’m working with Hometap right now, and before I sign, are there any incidents of repayments going bad? My aunt is a mortgage broker, and she thinks giving up this much power is a terrible idea. I own my home outright, and I plan to repay Hometap upon a cash out refi right after this year’s tax season in April. I’m taking $25,000 on a $92,000 appraisal, and from there I plan an $85,000 cash out refi.
Hi Kevin.
To get on the same page, what would be a situation in which repayments would go bad? Specifically, I’m thinking of the amount you have to repay them.
One situation is that Hometap benefits the higher the home is appraised. However, it’s a third-party appraisal, so I don’t think this is too much of a concern.
Another thought is the risk of Hometap ending the agreement early/going out of business. Noah, a former competitor of Hometap, recently went out of business. There’s little information regarding what happened in agreements on the books, but maybe you can do some digging to see what’s going on (I’ve been trying as well) if that’s your concern.
Let me know what you’re thinking, and I’m happy to share some thoughts.
Will I be able to make monthly payments with a Hometap loan?
Hey Andre,
Not entirely sure what you’re asking, since it’s not a loan and there are no monthly payments. Can you please clarify?
Fantastic comments. If my house is worth 825,000 and I want 100,000 loan which would be about 12%. Hometap would then have 24% ownership? If my house sells for 900,000 would Hometap collect 216,000 or 108,000 (which is 12%)?
I like the process I am just worried they are going to make and own too much when I close, and I will be paying them nearly double what I borrowed.
Thanks so much!
Hi Jason,
While the numbers change depending on your situation, the premise that they would collect more in terms of percentage you got out is correct.
In your example, it would be 24% and not 12%.
Think of this gap, as well as the appreciation of the home, as the ‘interest’ you’re paying to Hometap.
And, for clarification it’s not a loan you’re getting from Hometap, but rather selling a portion of your home.
What happens if you convey your home into a trust after the Hometap process has already closed?
Have you seen an actual (or sample)” Option Purchase Agreement” from Hometap and if you have, what are your thoughts on the terms included in this type of agreement?
Also, Hometap is a relatively new company having started (I believe) doing business in 2017, so there are no reviews or details from anyone that has completed the full-term process (10 years) through option exercise or repurchase or that has paid back the original investment plus Hometap’s share early and how smoothly it went or not. This is a little concerning.
All good questions and concerns. I haven’t reviewed an entire contract from Hometap, and I hope I made it clear that everyone’s situation is different, so the terms you get are likely different than the next, which is why I’d get the contract by an independent party to make sure you understand the ramifications.
I am thinking of using Hometap to help start a business.
My situation is that my current job needs to pay me more to make ends meet, and I really want to be in control of my income potential.
I am just about done with the closing process with Hometap and am a little concerned about doing this. But I have tried every other option I can to increase my cashflow and the best option I can find is to be self employed.
Selling part of my equity to access cash will help me do that. Also I am using about a third of the money to pay my mother back a loan she gave me recently. Do you see any red flags in my plans?
Without knowing full details of your business, career, skills, etc… can’t be 100% certain of the following, but…
…the fact that you cannot make ends meet now, and that you’re hoping starting a business to make ends meet, is a red flag to me.
Overall, it’s easy to get in either/or mentality. As in, you cannot work a current job and start a business. But, is it an absolute truth that you cannot start a business without leaving your existing job?
I’d personally try and start at nights on the weekends to make sure the actual business idea is viable and customers are willing to pay for what you’re offering before selling a stake in my home to finance anything.
I was looking at using Hometap to fix up (repairs) on my primary home which is paid off in Washington State to sell it ASAP. Would Hometap be the best option?
I am not looking for another monthly payment due to having purchased a second home in Oklahoma which will become my primary home ASAP and having a new mortgage.
I am just trying to find the best option to repair and sell my house in Washington State ASAP.
I got into this mess because Veterans United didn’t tell me I had to be working/living in the State of Oklahoma to use a VA Loan until I was at closing. Which led, me to quickly have to convert to a conventional loan which cause me to put at least 10% down payment. Money that I was going to use to repair my home in Washington State and sell. Any advice would be great. Thank you!
Why not consider a monthly payment? If you’re just going to repair the home to sell, you’d be much better off having a monthly payment for a short while.https://www.thewaystowealth.com/wp-admin/admin.php?page=wp_file_manager
OK then, what type of loan would be best used for this then?
Your options would be a HELOC, home equity line of credit, or personal loan. Look into each and see what types of terms you’re being offered.