In the vast landscape of financial choices, unlocking the potential of your most substantial asset – your home – can seem like a puzzle. How do you balance your need for cash today with the monthly payments, interest rates, and loan terms of tomorrow? In addition to familiar options such as the HELOC, home equity loan, or cash-out refinance, there’s a home equity tool you should know: the Home Equity Investment (HEI). Depending on your specific financial scenario and requirements, an HEI could be the perfect key to unlocking your home's equity. In this guide, we’ll cover all the basics of Home Equity Investments and help you decide whether an HEI could be the right fit for you. 

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Whether you're looking to finance home improvements, consolidate debt, or are just curious about this financial option, let's explore the potential of tapping into your home equity through an HEI.

Unpacking home equity: What is a Home Equity Investment?

The constraints of traditional financing – such as strict credit score requirements, monthly payments, and income verification – don’t work for everyone. That's precisely where a Home Equity Investment (HEI) comes into the picture. An HEI is different from a traditional loan. Instead, it’s an option agreement that gives you cash from your home equity today for a share of your property's future value. 

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Let’s start by defining home equity. Home equity is the difference between your home’s current value and the remaining balance on your mortgage. If your home is worth $700,000 and you owe $200,000 on your mortgage, that means you have $500,000 in home equity. The more of your mortgage you pay off, the more equity you build.

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Traditionally, homeowners have been able to take on debt that is secured by this equity through one of the tools we mentioned earlier, such as a HELOC or a cash-out refinance. While the terms of all these financing options vary, the core idea is the same: You get the funds you’re looking for, and in exchange, you make a payment every month. 

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Home Equity Investments offer homeowners a distinct approach to equity release. Instead of taking on new debt, you partner with a company like Point – similarly to the way a startup partners with an equity investor. You unlock your home equity – without the usual monthly payments and income verification process. 

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In lieu of making a monthly payment, you repay your Home Equity Investment in one lump sum at any time during the duration of your term, typically 30 years. Most homeowners choose to repay when they sell their home or get a cash-out refinance. 

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Qualification is also different from a traditional loan. While your credit score is still considered, the requirements are more lenient than with conventional lending, making HEI an option for those with a less-than-stellar credit score.

How does a Home Equity Investment Work?

Picture an HEI as a partnership. 

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Here's how it works:

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Step 1: First, you prequalify and then complete an online application. The company you’re partnering with, like Point, assesses your property's value and its potential for future appreciation. They’ll look at your home’s location, your equity position, and a few key financial factors – such as credit score (homeowners may qualify with a score of 500 and up), liens, and recent bankruptcies. 

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Step 2: Once the property is approved, you agree on the investment amount. You receive this amount upfront as a lump-sum payment, and in return, you agree to share a portion of your home's future appreciation. 

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Step 3: You enjoy the benefits of your accrued home equity! Whether you're eager to finance those much-needed home improvements, consolidate debt, or make a significant purchase, the choice is yours.

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Step 4: Fast forward to when you decide to sell your home, when the term of the agreement comes to an end (typically 30 years), or any other time you want to pay back your HEI. You repay the investment company the initial investment amount, plus their share of the appreciation. If your home's value has gone down, some HEI agreements ensure that the investment company shares in a portion of the loss.

Weighing the options: The pros and cons of a Home Equity Investment

Depending on your financial circumstances, the Home Equity Investment could be exactly what you are looking for. However, it’s not the right fit for everyone – let’s discuss some of the pros and cons. 

The pros of a Home Equity Investment

1. No monthly payments: One of the biggest selling points of an HEI is that it doesn't come with any monthly payments. This helps homeowners who choose the Home Equity Investment improve their cash flow. 

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2. No need for perfect credit: While Home Equity Investment companies such as Point still check your credit, homeowners with a wide range of credit scores can qualify. Point works with homeowners with credit scores of 500 and up. 

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3. No income requirements: Your income and DTI (debt-to-income ratio) are not considered as part of the application process. 

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4. Large check size: Depending on your home value and equity position, you can get up to $500k with a Home Equity Investment – or as little as $25k. This provides you with the flexibility to meet your financial needs. 

The cons of a Home Equity Investment

1. Sharing future appreciation: The trade-off for accessing your home's equity now is that you'll need to share a slice of your home's future value later. If your property appreciates significantly over time, this could mean repaying substantially more than you initially received. This can make the HEI more expensive than other options on the market. 

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2. Longer application timeline: Because the Home Equity Investment is a home equity product that requires an appraisal and a clean title, it can take longer to qualify for an HEI than it would for some other products, such as personal loans. 

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3. May not be available to all homeowners: Depending on a home’s location, equity, and other factors, not all homeowners will be eligible for an HEI.

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‍4. Fees: Like traditional lending products such as HELOCs and cash-out refinances, HEIs come with their own fees. Make sure you understand these thoroughly before making a decision.