Are you a homeowner with a good chunk of equity in your property? Then you’ve probably run across home equity lines of credit (HELOCs) and loans.
But perhaps you’ve also seen companies that “invest” in your home equity instead of lending you money.
This practice, referred to as home equity sharing, is becoming popular among those who have equity in their homes but who, for certain reasons, can’t or don’t want to take on additional debt.
Noah, founded in 2016, is one of the companies in this space. In this review, we’ll help you determine if you should use the service when you’re looking to leverage your home equity for cash, as well as how the company stacks up against its competitors.
Noah's HELOC alternative gives you cash today for a share of your home's future value, with no monthly payments. That can be helpful in certain situations, but it may also be more expensive than other options.
- You can save money by ending the contract early.
- Offers a program that can help you manage financial emergencies.
- Invests in condos and townhouses, in addition to single-family homes.
- High minimum property value to qualify ($300K).
- Short term length of 10 years.
- Currently available in just 10 states and the District of Colombia.
Noah Basics: How It Works
There are several companies in the home lending industry that now engage in shared home equity agreements. In essence, they give you money today in exchange for either a portion of your home’s equity or a portion of its expected appreciation over a period of time.
This isn’t a home equity loan or a HELOC, so there are no monthly payments; you pay back the company at the end of the term, when you sell your home, or (as is the case with Noah and some of its competitors) any time before the term ends.
Costs and Fees
At the end of your term, you’ll owe Noah their original investment plus a share of your home’s appreciation.
For example, imagine your home is worth $500,000 and Noah takes a 10% stake (or $50,000). For simplicity’s sake, we’ll assume there are no processing fees.
10 years later, your home appreciates to $550,000. You’d pay Noah back $50,000 (its original investment) plus $5,000 (10% of the $50,000 appreciation) for a total of $55,000.
What if your home depreciates in value?
You’d pay back your original investment amount minus Noah’s share of the depreciation.
So if your home dropped to $450,000, you’d subtract $5,000 (10% of the $50,000 depreciation) from the $50,000 decline to arrive at $45,000.
In other words, if your home declines in value you’ll owe Noah less than its original investment.
Note that Noah charges the greater of $2,000 or 3% of your investment amount as a service fee when closing the deal. The company deducts this and other third-party fees (such as the appraisal fee) from your proceeds before disbursing them to you.
Noah may also charge several other fees for specific services you request during your term.
Noah requires you to do a few things during your term:
- Make any mortgage, home equity loan and HELOC payments on time.
- Stay current on your property taxes.
- Maintain a suitable homeowner’s insurance policy.
- Keep the home in good condition and perform repairs when needed.
Noah’s terms are 10 years. At the end of the term, you owe a share of the appreciation in your home equal to the amount of equity Noah invested in.
If you sell your home before the term is up, your bill is due at the time of sale.
Noah is unique in this space in that it offers prepayment discounts — called “early exit” discounts — for buying out your contract within three years of closing the deal.
Discounts are applied to the total buyout amount.
The discount structure is as follows:
- First 12 months: 10% discount.
- 12-24 months: 7.5% discount.
- 24-36 months: 5% discount.
- After three years: 0% discount.
This discount is off the final payment amount. In other words, if you owe Noah $20,000 based on your agreement, and are able to pay it off in the first 12 months, that amount would be discounted to $18,000.
What About Renovations?
Noah is fine with you remodeling your home at any time during your term. Keep in mind, however, that this can increase your home’s value — making it more expensive to pay Noah back later.
As the homeowner, it’s important to adjust the ROI you’d be getting from remodels or repairs.
For example, say you’re looking to get a home equity share agreement from Noah to do a remodel, and in turn sell your home for a much higher price.
In this case, Noah would take a percentage of the appreciation based on your home before the remodel.
It can definitely be a win-win, but a smart move here would be to consult a real estate agent on the ROI you’d get from doing a remodel. Then, factor that into the cost of the agreement, comparing it to any alternatives you’re considering.
Application and Eligibility
Your home must be worth at least $300,000 with a loan-to-value ratio of at most 85% to qualify for Noah.
Additionally, you need a 600 credit score at a minimum. There are no income requirements.
Noah is available in the following states at the time of writing (we update this list periodically to keep it accurate):
- New Jersey
- New York
- Washington (state)
- Washington, D.C.
Noah does not work with the following types of homes:
- Homes used for commercial purposes.
- Land lease properties.
- Properties subject to foreclosure.
Once you apply, Noah will evaluate your mortgage balance, financial profile and required investment amount to determine their proposed investment.
From there, they’ll hire a third-party appraiser to appraise your home before drawing up the final contract.
How Much You Can Get
Noah can give you up to 20% of your home’s appraised value, with a maximum investment of $350,000.
Your proceeds depend on both your home’s appraised value and your equity in it when you apply.
Noah will tell you if you’re pre-approved and approximately how much you might qualify for after you fill out its short online application.
Noah Pros and Cons
Let’s look at the benefits and drawbacks of having Noah invest in your home equity.
- Early exit discount. Noah offers a discount (covered in the Costs and Fees section above) if you buy out their share of your home within three years of closing on the deal.
- Homeowner protection program. Noah explicitly states that it will offer up to $10,000 in additional support if you fall into financial difficulty that prevents you from keeping up with your mortgage or property taxes.
- Beyond single-family homes. Noah states that, in most cases, they’re willing to invest in townhouses and condominiums — not just single-family homes.
- Limited availability. Noah is only available in 10 states and DC at the time of writing.
- Term length. Noah has a 10-year term length, shorter than Point’s 30-year term length. (Read more about Point in the next section.)
- High minimum property value. Noah doesn’t work with homeowners whose homes are valued under $300,000.
Noah Competitors and Alternatives
Noah’s key competitors are Point, Hometap and Unison. Let’s explore how they stack up against each other.
- Hometap. Unlike Noah and other competitors, Hometap takes a share of your home’s appraised value at the end of the term or when you sell, instead of their original amount plus any appreciation. Hometap offers 10-year terms, a max loan-to-value ratio of 75%, and requires at least a 600 credit score. It’ll give you up to 30% of your home’s value for a max of $300,000.
- Point. Point offers 30-year terms (which can help or hurt depending on how you use the funds), and servicing fees range from 3% to 5%. Point will hand out up to $350,000, depending on your equity and home value.
- Unison. Unison offers 30 year-terms with a maximum cash amount of $500,000 and a servicing fee of 3.9%. You can only receive up to 17.5% of your home’s value, though.
Yes, you can use Noah for both vacation homes and rental properties, as long as neither is used for a commercial purpose (such as running a business out of the property).
If your home enters foreclosure, Noah helps you out as part of its Homeowner protection program. Under this program, they’ll give you up to $10,000 based on your property in additional financial support.
Noah Review: Wrap-Up
As the home equity sharing market expands, homeowners have more options for using their home equity to get cash without the burden of monthly payments.
Sure, home equity loans can be more cost-effective for homeowners with high credit scores and steady incomes. The interest you’d pay in this case would be less than the profit you’d owe a company like Noah.
However, borrowing money at such favorable terms may not be accessible to as many people. Plus, you may prefer not having to make a monthly payment.
On top of that, an investment from Noah or another home equity sharing firm doesn’t increase your debt-to-income ratio, making it easier to refinance or buy a new home down the road.
With all this in mind, an investment from Noah could help you out if you have significant high-interest consumer debt and you don’t want to replace it with another debt payment.
That said, Noah isn’t the most accessible home equity sharing company out there. It requires the largest home value out of the other popular equity sharing firms (Hometap simply asks you to hold 25% equity in your home) and has a higher credit score requirement than most.