The Best Shared Equity Alternatives to a Home Equity Loan
July 2024
Home equity investments, also known as shared equity agreements, are a debt-free alternative to home equity loans. Here is our list of the best shared equity agreements available.
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Shared equity agreements allow you to unlock your home equity without charging interest or monthly payments. They are also easier to qualify for than traditional home equity products, such as home equity loans and HELOCs. See how much you could get today for a share of your home's future appreciation.
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How do home equity lines of credit and home equity loans compare?
Home equity lines of credit and home equity loans are traditional financing products that charge an interest rate on loan proceeds secured against your home equity. They are excellent options if you can qualify for low interest rates and have a low debt-to-income ratio. On the other hand, a shared equity alternative may be a better alternative for tapping into your home equity if you want to protect your personal cash-flow, have a high debt-to-income ratio, or you can't afford additional monthly payments.
Shared equity agreements, sometimes known as home equity investments, allow homeowners to cash out on their equity without additional monthly payments. It works like this. Investors give homeowners a lump sum in exchange for a share in the future value of their homes. When the homes are sold (or when the contract term ends), the investors receive their share from the sale. If the value of the house increases, so does the amount the investor receives. If the house drops in value, the investor also shares in the loss.
Home equity investments are not technically loans. They won't increase your debt, don't charge interest and there aren't any monthly payments to worry about. Usually, it is easier to qualify for shared equity agreement than a home equity loan. To illustrate, you can be eligible for a shared equity agreement even if you have a high debt-to-income ratio. Home equity loans usually require a debt-to-income ratio that is lower than 43%.
A shared equity agreement can be a good option if you:
- need cash but don't want a monthly payment
- have high-interest debt to pay off
- need to finance a home improvement or want to start a business
Shared equity agreements are an attractive product for homeowners who want to avoid additional monthly payments and have an immediate need for cash. However, they do require substantial equity, usually 25% or more, and may not be a good option if you want to stay in your home for longer than the term of the agreement.
What are the pros and cons of shared equity agreements?
Home equity loans and shared equity agreements have their advantages and drawbacks. The best choice for you will depend on what your financial circumstances and objectives are. Here is a list of the pros and cons to keep in mind if you're considering a shared equity agreement as an alternative to a home equity loan.
How do I get started?
If you think a home equity investment may be a good choice for you, get quotes from all the home equity investors listed above.
It only takes a couple of minutes to find out if you prequalify and discover how much you can get for a share in your home's equity. There are no strings attached, and it won't hurt your credit score. You may be surprised by how well they compare to home equity loans and other traditional home equity financing options.