Home Equity Sharing/Investing vs Other Home Equity Options.
Before we get into Home Equity Sharing, sometimes called Home Equity Investing, let us take a look at what equity is, and some of the more traditional Home Equity options. Home Equity Sharing/Investing is available to homeowners and investors in select areas of California, Washington, Oregon, Colorado, New Jersey, Massachusetts, Virginia, Washington DC, Florida, New York, Maryland, Pennsylvania, Illinois, Michigan, Minnesota, Arizona, North Carolina, and Connecticut.
As a homeowner, it's important to know the amount of equity your home contains. That link, or the above image, take you to an informative piece surrounding the topic and provide advice on ways to increase home value.
When one wants to tap into the equity of their home, as the image above illustrates, one usually has 3, main options, that just about anyone can use:
Option 1: HEL (Home Equity Loan),
Option 2: HELOC (Home Equity Line Of Credit),
Option 3: Cash Out ReFi (Refinance).
Each of these have pros and cons. HELOCs are generally considered the “easiest,” whereas the Cash Out Refi is considered the “hardest,” where the HELs fall in between. What you need to keep in mind, for all of these is that in most, if not all, circumstances, while you will have “cash” for your investment options, you will now have two debts: your original mortgage (or new mortgage, for the ReFi), and your new loan.
You can opt to go to your original mortgage provider, shop around, or check out a lending exchange (Lending Tree, Prosper, etc), to see if you can tap into your equity, and invest in that equity into real estate, or a business, and as long as there is enough profit, it can pay back the investment amount, as well as your mortgage. However, there is one more that involves no monthly payments and no interest! It is “equity sharing.”
Investors will loan you an amount of money—ranging from 10 – 20%--and charge you no interest or monthly payments. Here are some FAQs:
Q: Is this a loan?
A: No. With no interest and no monthly payments, it is a mortgage debt alternative.
Q: How does this work?
A: You sell a future share of your property's future value upon selling (up or down), for a set amount of cash now.
Q: How much can I receive?
A: Up to 20% of your home's appraised value. The most invested in one home is $350,000; generally investments are less than this.
Q: What are the basic qualification guides?
A: This varies, case by case, but can include:
- One must have a dependable source of income, as well as good credit score. In some cases, investors may do 600. A soft pull is done in the pre-approval phase, which won't show on your credit.
- One should have a DTI (debt to income) ratio of less than 50%.
- The house must be your primary residence. In WA and CA, you may be able to do a second/vacation home, or rental.
- And other factors, discussed when you reach out to us.
Q: What types of properties are considered:
A: Single family properties with 1 to 4 units, Condominiums, Townhomes. Manufactured/mobile homes are generally not considered.
Q: Do the firms benefit from the equity?
A: No. The equity is yours.
Q: Are 2nd homes/investments considered?
A: They can be considered, but carry different underwriting, due to their risks.
For more info: contact us.