Understanding Home Equity Agreements: What Is a Home Equity Agreement and How Does It Work?

If you’re wondering “what is a home equity agreement,” you’re not alone. This emerging financing option has gained traction as an alternative for homeowners who struggle to qualify for traditional lending products. Unlike standard home equity loans or HELOCs, a home equity sharing arrangement operates on a fundamentally different principle—you’re borrowing against tomorrow’s home value, not today’s equity.

The Core Mechanics: What Distinguishes a Home Equity Agreement

So what is a home equity agreement really? At its simplest: you receive a lump sum of cash from an investment firm, and in return, you grant them a stake in your home’s future appreciation or depreciation. This isn’t technically a loan, which means you won’t face monthly payments or interest charges—a significant departure from conventional home equity financing.

The equity-sharing percentage gets locked in upfront, calculated based on your current home valuation (determined by a third-party appraiser), your existing equity position, geographic location, and creditworthiness. The company may then adjust the appraised value to establish a starting value, which becomes your borrowing baseline and provides investors with protection against potential home value decline.

Here’s the key difference from other home equity products: your exit strategy isn’t just about repaying a fixed amount plus interest. Instead, when the agreement terminates—typically between 10 and 30 years depending on the provider—you settle your obligation by either selling the property or buying out the investor’s equity stake.

Ownership and Lien Position: What You Keep, What You Share

Let’s be clear: you retain full ownership of your home. What changes is that a lien gets placed on the property, positioning the investment company in second position if you have a mortgage. This means during foreclosure, your mortgage lender gets paid first, then the equity partner receives their cut.

You maintain the right to sell anytime before the agreement concludes. However, once you do sell or reach the end date, you’ll need to settle with the investment company using sale proceeds, home refinancing, asset sales, or accumulated savings.

Calculating What You’ll Ultimately Owe

The ending value—and consequently, what you pay the investor—hinges on your home’s sale price or newly appraised valuation. Your actual obligation breaks down as follows:

If your home appreciates: You pay the company either a percentage of the final home value or a percentage of the appreciation gains.

If your home stays flat: You typically owe a percentage of the ending value or the original cash amount advanced.

If your home depreciates: Payment obligations vary—you might owe a percentage of ending value, a portion of originally advanced funds, or potentially nothing, depending on contract terms.

The Cost Breakdown: What to Budget

Understanding what is a home equity agreement means grasping its fee structure. Expect these typical costs when initiating an agreement:

• Origination charges: 3% to 5% of your equity advance
• Appraisal services: $200 to $1,250
• Property inspection: $650 to $1,050
• Title work: $200 to $900
• Escrow handling: $250 to $500

When you exit, you’ll likely face another round of appraisal, inspection, and title/escrow costs. If selling, real estate commissions to your agent apply too. This is why shopping multiple providers and comparing against traditional home equity loans or HELOC options makes financial sense—costs vary significantly based on location, property characteristics, and each company’s underwriting approach.

Where to Access These Agreements

Home equity sharing agreements won’t appear at your local bank, credit union, or through traditional mortgage lenders. Instead, venture-backed companies dominate this space, with geographic limitations being a major constraint. As of early 2024, availability remains patchy across the country.

Aspire operates in five states: California, Colorado, Florida, Massachusetts, and Washington.

HomePace serves nine regions: Arizona, Colorado, Illinois, Minnesota, North Carolina, Ohio, Tennessee, Utah, and Washington.

HomeTap reaches 16 states including Arizona, California, Florida, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Virginia, and Washington.

Point extends to 26 states plus Washington D.C., offering the broadest coverage with presence across Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, Washington, and Wisconsin.

Splitero focuses on five western states: California, Colorado, Oregon, Utah, and Washington.

Unison serves 29 states and Washington D.C., making it another wide-reaching option: Arizona, California, Colorado, Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, and Wisconsin.

Unlock provides services across 14 states: Arizona, California, Colorado, Florida, Michigan, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, and Washington.

When a Home Equity Agreement Makes Sense

The primary appeal of what is a home equity agreement is straightforward: access to capital when traditional lending doors close. Whether you lack sufficient income, don’t qualify due to credit constraints, or have inadequate cash flow for conventional borrowing, these agreements present a potential lifeline.

However, the tradeoff means surrendering a piece of your home’s future upside. You’re also committing to a potentially lengthy obligation (up to three decades with some providers), and you face the risk of forced sale if you cannot repay when the agreement matures.

Before committing, apply to multiple home equity agreement providers and explore alternative financing like traditional home equity loans. Compare total costs, terms, and implications across options to make an informed decision that aligns with your financial circumstances and long-term homeownership goals.