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Best Shared Equity Companies to Finance a Second Property | November 2022

Have you considered buying a second property and decided you can't afford one yet? A shared equity agreement can be a great way to finance the down payment and closing costs of a second home.

A second home can provide a source of income and a vacation getaway for the family. However, if you need a second mortgage to pay for it, get ready for stricter underwriting requirements and a larger minimum down payment. Tapping into your home equity can help.

The problem with traditional home equity loans and HELOCs is they come with interest, monthly payments, and stringent eligibility requirements. So, they are not a great option for homeowners who don't have perfect credit or prefer to avoid additional debt.

Shared equity agreements can be a smart alternative for many homeowners because they offer cash in exchange for a share in the future value of their homes. This means no debt, no interest, and no monthly payments to worry about.

Here is SuperMoney's list of the best shared equity investors for financing a second property.

How to finance a second property with shared equity financing

Mortgage lenders usually require larger down payments and higher credit scores for mortgages on a second property. This makes buying a second home a challenge for many homeowners. Shared equity financing can help aspiring investors fund a down payment without additional monthly payments. You have plenty of options when it comes to tapping into your home’s equity to diversify your real estate portfolio.

What’s the catch? Shared equity investors receive a share of your home's value when you sell your property or when the term of the agreement ends. 

Here is how it works.

Check whether you prequalify with multiple investors

The first step is to request an estimate and see if you meet the shared equity investor's requirements. Eligibility requirements and terms vary from investor to investor, so it is smart to get multiple quotes. Investors will collect basic information about you and your home and prepare an investment estimate. 

Don't limit yourself to home equity investors. Sometimes, traditional mortgage lenders have the most competitive offer. The lenders below specialize in providing mortgages for investment and vacation properties.

Remember that multiple hard inquiries on your credit report becuase of mortgage, shared equity, or auto loan requests within a short period of time will not have as much of an impact on your credit. In other words, there is no downside to checking all your options before choosing the best fit for you. However, if you continue to apply to multiple lenders aand getting hard inquiries from different agencies that help with the financing over an extended period of time, your credit score could start to suffer.

Complete the application process

If you qualify and the terms are a good fit for you, you will need to fill in an application. The investors will set up a home appraisal, which will determine how much they are ready to invest. If you accept the offer, the investor will arrange for a signing and wire your money a few days after.

Invest in your second property

Once you have the money, you can use it to buy a property, pay for closing costs, cover the down payment, or buy furnishings for your vacation home.

Settle the shared equity investment

Most shared equity agreements have 10- to 30-year terms. Once the term ends (or earlier if you sell the home) you will need to pay the investor the agreed share of your home's value.

What are the pros and cons of shared equity financing?

Financing a second home with a shared equity agreement can be a great option for many homeowners, but it's not for everyone. The best option for you will depend on your goals and financial circumstances.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks of financing a second property with shared equity agreements.

Pros
  • Tap into your home equity without getting further into debt.
  • No monthly payments or interest charges.
  • If your property loses value, so does the amount you have to repay.
  • Helps you pay for larger down payments.
  • You don't need great credit.
  • Even homeowners with a high loan-to-value-ratio can qualify.
Cons
  • You typically need a minimum of 25% equity in your home.
  • Reduces your profit when you sell your house.
  • You may have to sell the house to repay the investment.

How do I get started?

Are you curious about how much you could get from your property? It only takes a couple of minutes to find out if you qualify.

If you think a shared equity agreement may be a good option for you, ask for a quote from all the equity investors listed above. It will only take a couple of minutes to see if you prequalify. Then, compare rates and go with the investor that offers the best terms. It's free and won't hurt your credit.

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SuperMoney
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