Key Takeaways
Homeownership comes with many benefits, including the ability to use your home equity to fund a better life. In fact, more than 47% of homeowners are equity-rich.
Yet many still face challenges when trying to access that equity through traditional financing. Oftentimes, homeowners may not qualify because they’re on a fixed income or don’t have a high enough credit score.
Even for those who do qualify, a traditional home equity debt product isn’t always the best fit. That’s where a home equity agreement (HEA) can be a better option.
Before you apply, it helps to understand how HEA loans work, who qualifies, and the steps to get started.
What is an HEA?
Home equity agreements (HEAs) are a way to pull money out of your home without conventional debt or monthly payments. They let you tap the equity you've built up in exchange for a share of the home's future appreciation.
You can use this money for virtually anything you want, such as getting rid of your debt, home improvements, or caring for an aging loved one.
At the end of a 10-year term, you’ll repay the amount you borrowed — plus a portion of your home’s new value and any fees — in one single payment. Many homeowners use cash savings or take out another loan to make this payment; alternatively, you can also pay back your HEA at any time via refinancing or selling the home.
An HEA requires no monthly payments and has fewer qualifications compared to traditional home equity loans and lines of credit.
How to get a home equity agreement
Taking out a home equity agreement isn’t as simple as, say, a personal loan, but it’s also far less complicated than you might think. Here’s a good strategy for how to get a home equity agreement while ensuring you’re able to get the most out of it.
Assess your financial health
Although HEAs have fewer requirements than traditional lending products, you’ll still need to meet certain qualifications. It’s also a good idea to do a thorough financial review anyway so that you know whether you qualify for other options that may fit your needs better. Here’s what to consider:
- Budget: Tally up your income and expenses to see how much — if anything — you have left over each month that could potentially be used for a monthly payment.
- Credit score: Check both your credit score and your credit report, which may contain errors that you can fix in order to ensure your credit is correct.
- Home equity: Compare your remaining mortgage balance to your home’s estimated value. Generally, you can borrow up to 80% of your home’s value minus your remaining home debts, meaning you’re not eligible for an HEA until you have at least 20% equity in your home.
- Debt-to-income (DTI) ratio: Calculate what percentage of your monthly gross income goes toward your debt payments. If you’re approved, some companies require you to use a portion of your HEA funds to pay down your debt if your DTI ratio is above 45%. Some products, such as Point’s Home Equity Investment, come with no DTI restrictions.
Explore your options
Now that you have a baseline to work from, it’s time to shop around. First, consider whether an HEA is the best option for your needs, taking into account your qualifications and your long term plans for your home. Consider the pros and cons of HEAs when making this decision. Other HEA alternatives include:
- Personal loans
- Home equity loans
- Reverse mortgages
- Home equity lines of credit (HELOCs)
- Cash-out refinances
If you decide an HEA is your best option, it’s wise to consider your options from among the full range of shared equity agreement companies. Agreement terms to compare include:
- Fees
- Term lengths
- Share percentages
- Early buyout options
- Assumability by heirs
- Adjustments made to home value
- Caps and limits on repayment amount
In addition, consider whether repayment is based on your home’s total value or only a portion of the appreciation.
Submit an initial offer request
The first step to getting an HEA is to complete an initial offer request online. This only takes a few minutes and doesn’t impact your credit score with most companies.
You’ll get a quick estimate of how much funding you may be eligible for, along with the option to submit a full HEA application. It’s a good idea to complete an initial offer request with a few HEA providers so you can compare your options.
Gather your documents and submit a full application
Choose the best HEA offer and continue with a full application. Generally, this requires you to submit a few more pieces of information, along with copies of certain documents.
Getting approved for a home equity agreement generally requires fewer documents than when you first applied for your mortgage. Most HEA providers require the same things: your government-issued ID, a recent mortgage statement, and the declaration page for your homeowner’s insurance.
Get an appraisal
A representative from the company should reach out to touch base and explain the rest of the process. Typically, the HEA company will order an appraisal in order to get an accurate measure of your home’s current value, which impacts how much money you’ll be able to access. Depending on the company, this appraisal may require someone to come to your home or could be done remotely.
Final underwriting
After the HEA provider has an accurate estimate of your home’s value and verifies your other details, they’ll draw up a final offer for you to sign. Read this carefully, and if you still approve, go ahead and sign it. In some cases, you may be required to sign this in the presence of a notary.
Once the agreement is signed and returned to your HEA partner, it’s official: you both agree to the terms of the contract, and you’re now approved for the HEA.
Receive funds
Most HEA providers disburse your funds via electronic methods, such as a wire transfer or ACH deposit. This usually occurs within a few days of signing the agreement. Remember, any origination fees or closing costs may be taken out of your HEA funds if you didn’t pay for them upfront, so the actual amount you receive may be slightly less.
Once the funds are in your bank account, you can use them for whatever you want, with few or no restrictions depending on the terms of your contract.
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Frequently asked questions
What are the benefits of a home equity agreement?
A home equity agreement can offer flexible access to cash without adding monthly payments. Because repayment is based on your home’s future value, HEAs may be easier to qualify for than traditional loans and can be a good option for homeowners who want to use their equity while keeping monthly expenses predictable.
What are the risks of home equity agreements?
The main risk of a home equity agreement is that you have to settle the investment in a single lump sum payment, so it’s important to understand how an HEA fits into your long-term plans. If a 10-year term is too short, you may want to ask HEA providers about the ability to refinance the investment. Alternatively, you may wish to explore an HEI, which offers many of the same great perks, but with a 30-year term.
Another risk is that you’re sharing a portion of your home’s future value. If your home appreciates significantly, you may pay more than you would with other financing options.
Can you pay off a home equity agreement early?
Yes, many home equity agreements allow early repayment, often through refinancing, selling the home, or using savings. The amount owed is typically based on your home’s value at the time of payoff, so the final cost can vary depending on market conditions and the agreement’s structure.
Is an HEA better than a HELOC?
When considering HEA vs. HELOC, neither is necessarily better—they're just different. HEAs don’t require monthly payments and aren’t tied to interest rates, while HELOCs offer flexibility but come with variable payments and income requirements. The better option depends on your cash flow, credit profile, and how you plan to use your home equity.
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