How they work, pros and cons
- Co-ownership of a home involves selling a portion of the future appreciation of your home to an investor.
- These agreements have no monthly payments or interest.
- You can use it to cash in on your existing home ownership or to cover a down payment to buy a home.
Home ownership can be a valuable financial tool. You can borrow against this using traditional products such as home purchase loans, cash refinancing or home ownership lines of credit. Or, thanks to newer tools called home ownership sharing agreements, you can even sell a portion if you need cash. Participating in home equity can cover some of the costs of purchasing your home in the first place.
What is equity sharing?
Sharing equity is when you agree to participate in the appreciation of the value of your home. In return, you get a lump sum that you can use to cover expenses or, in the case of new homebuyers, use
The idea of participating in stocks is not new, but it has grown more popular in recent years. Many companies offer home ownership sharing agreements that can be used to take advantage of home ownership, purchase a home, or both.
“While equity sharing has been around since 2005, it has grown in popularity over the past five years,” says David Shapiro, founder and CEO of home equity firm EquiFi. “The most common use of equity sharing products is by existing homeowners seeking access to a portion of their home ownership.”
Home equity sharing agreements do not require payments, nor do they charge interest. This sets it apart from other real estate equity products, such as home equity loans and home equity lines of credit (HELOCs).
“Equity-sharing products are used for home financing and are an alternative to borrowing,” Shapiro says. “These products are not loans, do not charge an interest rate, and have no monthly payments. Instead, they share the home’s economics with the homeowner when the contract expires.”
How does home equity sharing work?
The specific process of equity sharing depends on the company you’re working with. Usually, they will evaluate your property and then make you an offer: X amount of money for X amount of equity, plus a percentage of the house’s future appreciation.
“We have an outside appraiser who takes a look at the house and determines its value,” says Matt O’Hara, head of portfolio management and research at Unison, an equity firm. “Based on that, we give up to 17.5% – or up to $500,000 – of that value to the homeowner. If they agree, they can use the cash as they like.”
Homeowners don’t make payments until they sell the home or the term of their agreement expires (30 years in the case of Unison, 10 years for some).
“They give us back that original amount plus a percentage of the change in the value of the house,” O’Hara says. “If the value of the house goes down, the amount paid to us also goes down. We only win when our homeowners do it.”
What companies offer home equity sharing?
You won’t find home equity agreements at your local bank or credit union, but plenty of private companies offer these. Some call themselves “co-investors,” because they invest in the future growth of your home.
Here are some of the companies that do home equity agreements:
- harmony: Headquartered in San Francisco, Unison is a home equity associate that has been in business since 2013. It operates in 28 states and Washington, DC.
- EquiFi: In business since 2015, EquiFi offers home ownership sharing to both homebuyers and existing homeowners. The company is headquartered in San Jose, California, and serves clients in that state of California (although another 16 states are in the business). Offers equity sharing agreements without specific payment terms.
- Hometab: Hometap is a newer equity firm headquartered in Boston. The company has been in operation since 2019 and offers share sharing agreements in 18 states.
- Point: Point offers stock sharing options to home buyers and homeowners as well as HELOCs for homes, operates in 17 states and Washington, DC, is headquartered in Palo Alto, California, and has been in operation since 2015.
- Unlock: Launched in 2021, unlocking is one of the newest home ownership sharing options. The San Francisco-based company also offers partial purchases, allowing you to spread the repayment over 10 years.
Not all companies operate in every state, but most allow you to check real estate eligibility on their website. As O’Hara explains: “Homeowners can type in their home address on our website and see if they qualify and receive a free estimate – without any risk to their credit or obligation to take the next step.”
Pros and Cons of Home Equity Sharing
The biggest benefit of home sharing is that it’s not a debt. There are no monthly payments, no interest, and you can use the money as you wish.
It may be easier to qualify for equity sharing agreements than to qualify for a loan. For example, Equity Share Unlock allows homes to have credit scores as low as 500. With a homeownership credit line, you can expect to need a score of at least 620 to qualify.
On the downside, being involved in the future value of your home can cost you a lot—especially if your home appreciates a lot over the term of the agreement. In addition, most equity-participating companies require you to pay them back in one lump sum at the end of your term. This can lead to large expenses at once.
Share sharing at home is also not available everywhere. Many companies will not be involved in rental properties, second homes, investment properties, multi-family homes or more unique homes.
“Have you ever seen any of those episodes of ‘House Hunters’ where in a house there’s a cunning lawn room or a huge Jacuzzi in the middle of a hot pink carpeted room? Homeowners with such funky dwellings might not be able to tell,” O’Hara says. .
An example of equity sharing
Here’s a look at what it would look like to get a home equity sharing agreement as a homeowner:
You will fill out an application with the home equity participation company of your choice. They will send a professional appraiser to assess your property and then make you a formal offer.
If your home is worth $500,000, for example, they might offer you 17.5% (the maximum Unison investment) — or $87,500. At the end of your 30-year term, they will want your $87,500 back, plus a percentage of the capital you earned during that time period. If the agreement is 20%, for example, and the value of your home jumps from $500,000 to $700,000, you owe them an additional $40,000 (200,000 x 20).
You can also choose to sell your home before the 30-year period ends. If so, you will pay the home equity sharing company out of your sale proceeds.