Unlock offers home equity sharing agreements that are an alternative to a traditional loan. Unlock invests in the future appreciation of your home, with the size and term of the investment determined by your home’s current value.
Unlock differs from a home equity loan or line of credit (HELOC). While you do receive cash up-front, there are no monthly payments or interest. Instead, you’ll pay back Unlock an agreed-upon percentage of your home’s value when you sell, either through full or partial buyout or at the expiration of your agreement term.
In this review, we’ll take a more detailed look at how Unlock works, how it compares to a traditional home equity loan, and whether it’s a good idea when you’re looking for ways to tap into your home’s value.
Unlock Basics: How It Works
Rather than operating as a traditional lender, Unlock invests in a portion of your home’s equity, hoping that the value of your property will increase over time. In return, you get a cash payment up-front with no monthly payment or interest.
When starting out with Unlock, you’ll need to complete a short application, after which the company will assess the value of your home and provide you with an estimate. Unlock will offer an agreement to invest a percentage of your home’s current equity, with buyback terms to follow later.
You continue living in your home without making monthly payments to Unlock, but you are still responsible for the property, including the existing mortgage (if any), tax obligations, and maintenance.
Unlock is not on the title of your home (you’re still the owner). However, it’s important to remember that Unlock still has an equity share of your home.
Unlock sets a term for the home equity agreement, and you have the choice to end the agreement at any time within that term. An additional option, which no other home equity arraignment currently provides, is that of a partial buyout of Unlock.
Regarding ending your home equity agreement, there are two ways to do this: selling your home or paying Unlock back in full according to your initial agreement.
To illustrate with an example: Say your home is worth $500,000. For a 16% stake in your home, Unlock offers you $50,000 in cash up-front. Your home then appreciates 3% annually for the next 10 years, resulting in a market value of $671,958.19.
If you were to sell your home at this point, you’d owe Unlock $107,513.31 at the time of sale.
|Starting Home Value||Cash Received||Future Home Value (10 Years)||Paid Back After 10 Years|
|3% annual appreciation||$500,000||$50,000||$671,958.19||$107,513.31|
To illustrate an example of a partial buyout, let’s use the same numbers as above but instead of a 10-year timeframe, you decide to partially buy out half of your Unlock contract (8%) after five years.
|Starting Home Value||Cash Received||Future Home Value (Five Years)||Partial Buyout|
|3% annual appreciation||$500,000||$50,000||$579,637.04||$46,370.96|
In this case, you’re paying $46,370.96 in five years, which leaves Unlock with an 8% remaining equity stake in your home.
How Much You Can Get
Unlock offers home equity agreements ranging from $30,000 to $500,000. They cap their investment amount at 43.5% of your property’s current value.
The exact amount you’ll receive depends on a variety of factors. These include your home’s current value, the amount of debt you have on the home, your current credit rating, and how you use your home.
While Unlock has flexible credit requirements, a higher credit score often means they will invest more money. Additionally, owners who live in their properties can typically borrow more than those who don’t.
Unlock also uses a calculation called Total Home Finance to determine if you qualify for an agreement, and, if so, how much you can get. This calculation reflects your current loan to value ratio (LTV), which is the amount of money you currently owe on the house relative to its total value.
For example, your home might have a market value of $500,000, and you would like to take out $50,000, or 10% of your home’s value. Unlock might then agree to 16% equity in your home.
Let’s say you currently have $200,000 in mortgage debt on your home. This means that your LTV ratio is 40%.
To get your Total Home Finance amount, you’ll add Unlock’s equity to your LTV, which results in 56%.
When entering into a home equity agreement with Unlock, your Total Home Finance cannot exceed 85%.
Costs & Fees
While you don’t have to make monthly payments on the money you receive from Unlock, there are still long-term costs to keep in mind. The overall amount you’ll spend depends on the value of your home and how that changes over time.
Returning to our earlier example, let’s say your home was valued at $500,000 at the time of your initial agreement, and you received $50,000 (10%) from Unlock in exchange for 16% of the total home value.
10 years later, the term ends and you’re ready to settle up with Unlock. At this time, your home has appreciated 3% annually to $671,958. You’ll owe Unlock 16% of your home’s current value, which is $107,513.31.
In this example, you’ll pay Unlock back $57,513.31 more than you initially received. This amount could be much higher if your home dramatically increases in value or you could end up paying back nothing if your home significantly goes down in value.
|Starting Home Value||Future Home Value (10 Years)||Cash Received||Paid Back After 10 Years|
|-2% annual appreciation||$500,000||$408,536.40||$50,000||$65,365.82|
|0% annual appreciation||$500,000||$500,000.00||$50,000||$80,000.00|
|3% annual appreciation||$500,000||$671,958.19||$50,000||$107,513.31|
|7% annual appreciation||$500,000||$983,575.68||$50,000||$157,372.11|
Additionally, there are some other fees to keep in mind. You will be responsible for a 3% origination fee at the beginning of the agreement on the loan amount. This would be $1,500 in the example we’ve been using (3% of $50,000).
You will also be responsible for necessary appraisal and home inspection fees related to the agreement. You will need to have your home valued before entering into the agreement and at the end of your agreement term. Home appraisals can vary in cost, but are typically between $300 and $400.
Unlock vs. HELOCs
Unlock agreements are marketed as an alternative to a home equity line of credit (often referred to as a HELOC).
HELOCs are a way to borrow money based on your home’s equity, and they function very differently from Unlock’s home equity investments.
HELOCs are offered by banks, credit unions and other traditional lenders. Your home is used as collateral, and you can typically open a credit line of up to 85% of your home’s value, minus any mortgage debt you’re currently carrying. HELOCs work similarly to a credit card in that you will need to make regular payments and will accrue interest on the balance you carry. As you make payments on your HELOC, your available credit replenishes.
HELOCs are available for a set period of time (usually 30 years). In that 30-year period, you will have a draw period and a repayment period. The draw period typically lasts about 10 years, and you’ll be able to borrow money and repay your balance during this time. The repayment period starts after the draw period ends. During this time, you will be required to make monthly payments on your existing balance. As with Unlock, you will need to pay appraisal fees on a HELOC.
The biggest difference between a HELOC and Unlock is that you’ll have to pay interest on your line of credit, while Unlock doesn’t charge interest at all. Most HELOCs have variable interest rates, which means your monthly payment could go up in higher interest rate environments.
Of course, the terms of a HELOC are largely dependent on your credit score and income.
On the other hand, home equity sharing companies like Unlock have more flexible underwriting guidelines. For example, most banks require a 680 credit score to qualify for a HELOC, while Unlock has a minimum credit score of 500.
How Renovations & Maintenance Affect Your Cost
Unlock does not share in any value created due to capital improvements like home remodels or renovations. You will need to have your renovations appraised at the time of your home’s sale or your Unlock repayment.
Let’s say you renovated your kitchen during your agreement. When it comes time to sell your home, an appraiser determines that this renovation added $20,000 in value to your property.
Unlock will take an Improvement Adjustment of $20,000 against your total repayment amount. Note that this isn’t necessarily the amount you spent on the renovation — just the amount of value that the renovation has added to the property.
Let’s revisit our earlier example. The ending home value, in this case, was $671,958. Unlock would subtract $20,000 from that amount to get $651,958. You would then owe Unlock 16% of this amount as specified in your initial agreement. This would come out to $104,313.
When it comes to general maintenance, Unlock does not share in any value lost if you don’t maintain your property. This means that if you don’t make necessary repairs and your home depreciates in value as a result, you’ll still need to pay back the equity on the amount your home has depreciated.
Term Length & Repayment
The standard term for an Unlock agreement is 10 years. There are some instances where terms are longer or shorter. Within these 10 years, you will need to either sell your home or make a full repayment directly to Unlock, which could potentially be accomplished through a cash-out refinance.
You do not need to make monthly payments on your Unlock agreement. However, you can pay back the investment any time within your 10-year term. In addition, you have the option to partially buy out Unlock at any time prior to your 10-year term ending.
There is no penalty or bonus for paying back the investment early. However, you might benefit from making your payment before your term is up if you anticipate your home dramatically appreciating in value.
You will need to have your home appraised before you plan on selling your home or making your repayment. Unlock may request a third-party appraisal as well. Because this process takes time, you will need to notify Unlock as soon as you’ve made this decision.
Application and Eligibility
When compared to a traditional HELOC or home equity loan, Unlock is much more flexible with its requirements. Unlock is also far more accessible than many of its competitors who offer similar home equity investments.
Unlock only requires a FICO score of 500. This is very low when compared to most other home equity investors and traditional lenders. Unlock only conducts a soft credit check, which means that it will not affect your credit score.
|Company||Minimum Credit Score||Learn More|
They also do not have a standard income requirement for investment, although they may ask you to verify certain income streams.
For example, if you want Unlock to invest in a portion of a rental property, you may need to verify the rent on that property.
Homeowners will also need to provide information about their mortgage. In most cases, you will need a loan to value ratio of 85% or lower in order to qualify for Unlock.
Unlock is not currently available in all states. Right now, they are only available in Arizona, California, Colorado, Florida, Michigan, Minnesota, Nevada, New Jersey, North Carolina, Oregon, South Carolina, Tennessee, Utah, Virginia, and Washington. They have indicated that they may expand to other states in the future.
Before you complete the application, you can get an initial quote on Unlock’s website just by entering some basic information about your home. However, this amount may change later on in the application process.
When applying, you will need to submit a government-issued ID, a mortgage statement, and proof of homeowner’s insurance, as well as any applicable rental agreements or trust statements. Once Unlock reviews these documents, you will then need to get your property appraised and inspected. From there, Unlock will provide an offer letter with the final terms.
Pros and Cons of Unlock
- No monthly payments or interest. Arguably the biggest advantage of using Unlock is that you don’t need to make any monthly payments and interest doesn’t accrue. You aren’t carrying any additional debt through this period and can easily repay the investment when you sell your house.
- Minimal financial requirements. Unlock has very few financial requirements for homeowners. You’ll need to have an LTV ratio of 85% or lower as well as a credit score of 500. There are no specific income requirements. This makes it a viable option for those who may not qualify for more financially-restrictive programs.
- Doesn’t discount the initial appraisal value. Other home equity providers discount upfront your home’s appraisal value to reduce their risk. Unlock doesn’t.
- No usage criteria. Once you receive the lump sum from Unlock, you can use it for virtually anything, from paying off debt to taking on new projects and more.
- Flexible buy-out terms. Unlock is the only provider of home equity agreements that offers partial or full buyouts with no limitations.
- Easy to apply. The initial quote and application process can be done entirely online. It is also very straightforward and easy to understand.
- Can be used for any property. Because Unlock does not have any residency requirements, you can use it for vacation properties and investment properties.
- Unlock receives more in equity than they pay you. A typical Unlock agreement is 10% of your home’s value upfront for 16% in equity. This means you could end up paying Unlock a much larger portion of your home’s equity than you initially received, especially if your home appreciates in value.
- Only available in 15 states. Unlock isn’t an option for everyone across the U.S. right now.
- You have to pay Unlock in full at the end of the term, whether you sell your home or not. This means that you could potentially be forced to sell your home to repay at the end of the term if you don’t have funds saved up. (Although the company could offer you a HEA refi to buy out your original agreement).
- Low maximum terms. Unlock has a maximum term length of 10 years, which is shorter than some competitors.
Over the past few years, a variety of home equity services similar to Unlock have popped up on the market. Because home equity investing is a relatively new concept, it is difficult to compare these services, as they all take slightly different approaches. Here are some of the most popular alternatives to Unlock and how they stack up.
The biggest differentiator between Point and Unlock is that Point offers very long 30-year terms, which gives users a bit more flexibility when it comes to selling their home. However, they require customers to have 30% home equity, as opposed to Unlock’s 20%. They also discount your home’s initial value.
Learn more in our Point review.
On the surface, Hometap and Unlock appear to function similarly. They both offer 10-year terms and charge a 3% fee, although Hometap charges a closing fee rather than an origination fee. However, there are some slight differences. Hometap will let you borrow a maximum of 30% of your home’s value, compared to Unlock’s 43.5%. Hometap’s minimum credit score is 500.
Learn more in our Hometap review.
Unison offers similar services to Unlock, but they do have much stricter requirements for applicants. They require a credit score of at least 620 and a maximum LTV of 75%. They will invest a maximum of 17.5% of your home’s value.
Learn more in our Unison review.
Unlock does have basic maintenance requirements for the homes it invests in. While they assume natural wear and tear will happen, their contracts also assume that you will conduct proper maintenance on your property. Unlock doesn’t publicly define what “proper maintenance” entails.
If you don’t keep up with maintenance on your property and its value decreases, Unlock can make a “maintenance adjustment.” This essentially means the losses on your property would not affect their investment.
Unlock does not have any residency requirements for the properties it invests in. This means that you can use Unlock for rental properties, vacation homes, and other investment properties. When applying, you may need to submit extra documentation to prove rental income.
Unlock has a variety of procedures in place that are designed to protect their investment in your home. If you fall behind on your mortgage payments or property taxes, they can opt to make a “protective advance” to keep your home in good standing. This means that they will make any past-due payments for you up-front, and you will need to repay these advances with interest and fees.
If your home does go into foreclosure, Unlock can help you make a “non-distressed sale.” This means that they will help you sell your home before it goes into foreclosure so you can get the best possible price for it.
Unlock Review: Final Verdict
Unlock could be a good alternative to a traditional home equity loan or HELOC for those who don’t qualify for one. Unlock’s minimal qualification threshold makes it very accessible to those with low credit scores or who have atypical income sources. The lack of monthly payments or usage restrictions gives clients plenty of flexibility with their investments.
This service is best for those who plan on selling their homes within the 10-year term, as refinancing down the line to cash-out of your home equity sharing agreement is no guarantee. It may also be a good option for homeowners who can put the money received up-front to very good use — like paying off a lot of high-interest credit card debt, starting a business, or avoiding bankruptcy.