Using A Home Equity Investment (HEI) to Cash Out Home Equity: Dumb Move or Savvy Play?

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A home equity investment, or HEI, is a new and little-known way to tap into home equity with no mortgage payments, zero mortgage interest, and without giving up ownership of your home. Sounds intriguing, right? But is it legitimate? We’ll cover how it works and a few potential pitfalls to watch out for.

What is a Home Equity Investment (HEI)?

If you’ve checked into a home equity loan or HELOC lately, you probably already know that interest rates have increased a lot over the last few years. And, of course, higher rates means higher monthly payments on home equity loans.

These days, a home equity loan can easily cost $250 to $300 per month to borrow a mere $25,000. If you borrow $100,000, it could cost $1,000 to $1,200 or more per month. That’s a big payment for a relatively modest loan amount.

And if you happen to have bruised credit, limited income, or difficulty proving your income, it could be tough to qualify for a home equity loan in the first place.

Fortunately, a regular home equity loan from a regular bank or credit union is no longer the only game in town. A new option is available that could make sense for many homeowners: the home equity investment.

How It Works

A home equity investment, or HEI, enables you to convert home equity into cash with no mortgage payments, no interest charges, and without giving up ownership of your home – even if you have poor credit, no income, or have difficulty proving income.

HEIs are structured in a variety of ways, but here’s how they generally work:

  • Cash lump sum – You receive a large lump sum of cash based on how much you need and how much equity you have in your home. Payouts are generally in the $30,000 to $500,000 range.
  • No monthly payments and no interest – Unlike a home equity loan or HELOC, no monthly payments are required and no interest is charged on your payout.
  • You remain the owner of your home – You remain the owner of your home, which means you’ll continue to pay your property taxes, homeowner’s insurance, and any existing mortgage payments and HOA dues (if applicable).
  • No minimum income requirements – Because there are no monthly payments, there are no minimum income requirements. It’s possible to qualify even if you have zero income.
  • Qualify even if you have bad credit – You don’t need perfect credit to qualify. Minimum credit scores are usually around 500.
  • Keep your existing mortgage – You don’t have to refinance or pay off your existing mortgage.

In exchange for a lump sum payout, you agree to repay the investor a percentage of the value of your home at a future date, such as when you sell the home, the last borrower passes away, or the contract term (usually ten years or longer) ends.

HEIs are not available in all states and not everybody qualifies. If you would like to check your eligibility, we recommend starting with Unlock, a leading provider rated “Excellent” on Trustpilot. Click the button below to check your eligibility now.

A home equity investment is also known as a home equity agreement, equity sharing agreement, equity agreement, or investment home equity loan.

How Homeowners Use A Home Equity Investment

A home equity investment can be a great option because it enables you to convert home equity into cash without adding yet another payment to the monthly budget. Homeowners commonly use the funds to:

  • Consolidate debt & reduce monthly expenses – Wiping out high interest and high payment credit card balances, personal loans, and auto loans can free up hundreds or even thousands of dollars per month.
  • Improve credit scores – High credit card balances can damage your credit scores even if you make your payments on time. Paying off credit card debt can significantly improve your credit scores.
  • Pay off medical, dental, and vet bills – Many homeowners use the HEI to clear up medical, dental, and vet bills, which can easily run into the thousands or tens of thousands.
  • Fund home repairs and improvements – Homeowners commonly use an HEI to pay for home improvements and repairs.
  • Rainy day or emergency fund – The cost of living rising has been rising fast, so it’s critical to have cash laying around for unexpected expenses.

How Much Can You Get?

The HEI typically offers cash lump sums of between $30,000 and $500,000, depending on how much you need and how much equity you have.

Again, there are no monthly payments and no interest charges, even if you have less than perfect credit.

You can use the funds to pay off high interest debt, reduce monthly expenses, do home improvements, fund college tuition and expenses, etc. Use the cash for whatever you need.

Other Considerations

The HEI is a legitimate product, but there are some things you’ll want to consider before signing on the dotted line:

  1. The time limit – Remember, the investor wants to get repaid at the end of the contract term. If you don’t sell your home, you’ll need to repay the agreement with cash and/or another loan.
  2. Closing costs – There are at least some closing costs, including origination, title, escrow, recording, appraisal, credit report, etc.
  3. Additional fees at buy out – You may have to pay additional title, reconveyance, escrow, appraisal, and administration fees at the end of the contract term. Make sure to ask about these before you close.
  4. Maintenance adjustment – As with a traditional home equity loan, it’s important to maintain your home. If you let your home fall apart, the investor may assess a maintenance adjustment on the value of your home at the end of the contract. In other words, the investor will increase the final value to what your home should be worth had it been maintained, then figure their buy out based on that number.
  5. Difficulty getting a regular mortgage – HEIs are unique and few mortgage lenders and professionals understand how they work. You may find it difficult or impossible to get a regular mortgage without first paying off your HEI.
  6. Default – Though there’s no payment, it’s still possible to default. Default events include falling behind on mortgage payments, property taxes, homeowner’s insurance, and HOA dues (if applicable). Other defaults could include zoning restriction violations, unpermitted additions and modifications, bankruptcy, and letting the home deteriorate. If you default, you may have to reimburse the investor various fees incurred to work out and resolve the default. If the default is serious and can’t be resolved, you could face foreclosure.
  7. Complex and unfamiliar terms – HEIs are different from what most homeowners are used to. Even if you’re working with a reputable company who discloses and explains everything thoroughly, it can be easy to overlook important considerations that could have a significant negative impact in the future.
  8. Not available in all states – HEIs are not available in all states.

The home equity investment is a legitimate and viable product, but it’s important to understand the terms and potential downsides before you sign the final agreement. You may want to enlist a trusted advisor to review the terms as well.

Where to Find Investors

The HEI industry is still fairly small. You may have to dig a little to find a good company that operates in your state. We recommend checking the latest reviews on Trustpilot, the BBB, and Google Reviews as you investigate potential companies to work with.

If you would like to get a payout estimate today, we recommend starting with Unlock, a leading provider rated “Excellent” on Trustpilot. Click the button below to check your eligibility now.

Frequently Asked Questions

Is a home equity investment a good idea?

It depends! If you have difficulty qualifying for a regular home equity loan or HELOC, you may want to consider a home equity investment. It offers access to home equity without a monthly payment, even if you have poor credit scores and/or difficulty proving your income. If you’re over the age of 62, you may also want to consider a reverse mortgage. A reverse mortgage has no monthly payments as long as you live in your home and pay your property taxes, homeowner’s insurance, and HOA dues (if applicable).

Are home equity investments worth it?

Yes, it’s a good option for many homeowners. If you have difficulty qualifying for a regular home equity loan or HELOC, you may want to consider a home equity investment. It offers access to home equity without a monthly payment, even if you have poor credit scores and/or difficulty proving your income.

Can you pay back a home equity investment?

Yes, you can pay it back with cash, by selling your home, or by taking out a traditional loan to pay off the home equity investment.

Mike Roberts Avatar
About Mike Roberts

Mike Roberts is the founder of MyHECM.com, an author, and a highly experienced veteran of the mortgage industry. When he's not working, he enjoys spending time with his family, skiing, camping, traveling, or reading a good book. Roberts is the author of The Reverse Mortgage Revealed: An Industry Insider’s Guide to the Reverse Mortgage, which is available on Amazon.