Home equity investments

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Home equity investments (HEI) are financial products that allow homeowners to access their home equity as a lump sum without incurring monthly payments. They first emerged around 2015 and function by enabling investors to purchase a minority stake in a homeowner's property for a predetermined duration. In return, investors receive either a percentage of the home's future market value or a specified share of its appreciation. [1] [2]

Contents

HEIs typically do not require monthly repayments; instead, homeowners repay investors either at the end of the agreed term or upon selling the property. Investors share in both the appreciation and depreciation of the home's value, thereby creating a downside-protected asset. [2] [3]

Structure

HEI pricing structures generally follow one of two models:

Companies currently offering HEIs in the United States include Hometap, Point, Unlock, Splitero, and Aspire. [5] [6] Qualification criteria vary but typically require homeowners to have at least 20-25% equity in their homes. [5] [7] Additional eligibility factors include credit score, debt-to-income ratio, and home value. [5] [7] Investment amounts usually range between $15,000 and $600,000, and are capped at approximately 25% of the home's market value. [5] [8]

Applications

Home equity investments serve as alternatives to traditional financial instruments such as cash-out refinancing, reverse mortgages, and small business loans. [9] Generally, these investments do not impose restrictions on the use of funds and attracting homeowners seeking flexibility. [9] [10]

Developments and regulation

Home equity investment products have gained increased attention from both financial markets and regulators due to their growing popularity acceptance as an asset class alternative to home equity loans and HELOCs. [4] [6] [8] [11] [12] This includes being securitized for investment from institutional capital. [13] [14] Other developments include enhanced transparency tools for homeowners, such as equity dashboards, and greater scrutiny from regulators monitoring these financial products' rapid expansion. [15] [16] HEI companies have been criticized for potential risks and downsides, including uncertain future obligations and possible reduced equity for homeowners. [6] [17]

References

  1. ↑ Schiller, Ben (2016-08-22). "Could Fractional Ownership Make Owning Homes Easier?". Fast Company.
  2. 1 2 Olick, Diana (2019-04-05). "Need cash? Now you can sell the equity in your home to investors". CNBC.
  3. ↑ Davies, Rachel (2024-11-12). "He Wanted to Create a New Way for Homeowners to Turn Their Equity Into Cash. He Ended Up Unlocking $1 Billion". Entrepreneur.
  4. 1 2 3 Rodriguez, James. "Homebuyers battling high mortgage rates could soon have a new option: sell a stake in their future home for as much as $250,000 toward a down payment". Business Insider. Retrieved 2025-04-27.
  5. 1 2 3 4 "Home Equity Sharing: Pros and Cons". Money. Retrieved 2025-04-27.
  6. 1 2 3 Lieber, Ron (2024-05-19). "The High-Class Problem That Comes With Home Equity". The New York Times. ISSN   0362-4331 . Retrieved 2025-04-27.
  7. 1 2 Neubauer, Kelsey (2024-09-30). "What is a home equity sharing agreement?". CNBC. Retrieved 2025-04-27.
  8. 1 2 "Issue Spotlight: Home Equity Contracts: Market Overview". Consumer Financial Protection Bureau. 2025-01-15. Retrieved 2025-04-27.
  9. 1 2 Conforti, Nick (2024-05-14). "Home equity investments: the asset class to watch". GlobalCapital Securitization. Retrieved 2025-04-26.
  10. ↑ Indap, Sujeep (2024-10-03). "Private credit's latest contraption". Financial Times.
  11. ↑ "State licensing may be in store for HEI originators". National Mortgage News. 2025-01-31. Retrieved 2025-04-27.
  12. ↑ Clow, Chris. "Washington Legislature wants to study home equity investments". HousingWire. Retrieved 2025-04-27.
  13. ↑ Taylor, Isaac (2024-09-17). "Exclusive | Carlyle Targets Home-Equity Deals With Stake in Unison". Wall Street Journal. ISSN   0099-9660 . Retrieved 2025-04-27.
  14. ↑ "Hometap raises $217 million in inaugural home equity investment securitization". Asset Securitization Report. 2024-07-01. Retrieved 2025-04-27.
  15. ↑ "Home equity investment products gain steam amid growing legal scrutiny". National Mortgage News. 2024-10-04. Retrieved 2025-04-27.
  16. ↑ Kim, Connie. "Once at the fringes of housing finance, home equity investment companies look to grow their stake". HousingWire. Retrieved 2025-04-27.
  17. ↑ Freeman, Gina (2025-02-24). "Too Good to Be True? How a Shared Equity Mortgage Works". U.S. News & World Report.
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