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A home equity agreement, or HEA, is a 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.
Table of Contents
What is a Home Equity Agreement (HEA)?
If you’ve checked into a home equity loan lately, you probably already know that interest rates have increased a lot. And, of course, higher rates means higher monthly payments on home equity loans.
These days, a home equity loan can 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 is no longer the only game in town. There is a new option available that could make sense for many homeowners: the home equity agreement.
How The HEA Loan Works
A home equity agreement, or HEA, 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.
Home equity agreements can be structured in various ways, but here’s how they generally work:
The HEA offers access to your home equity with no monthly payment and no interest charges.
Cash lump sum – You receive a large lump sum of cash based on the equity in your home. Payouts can be anywhere from $30,000 to $500,000.
No monthly paymentsand 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.
Home equity agreements 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 agreement, or HEA, offers access to home equity with no mortgage payments, no interest charges, and without giving up ownership of your home, even if you have poor credit and difficulty proving income.
HEA Loan Requirements
HEA loan requirements vary from one investor to the next, but here are some common requirements:
Homeownership – You need to own a home and have significant equity in your home. How much home equity you need could vary depending on the company you’re working with.
Occupancy – Primary residences, second homes, and rentals are eligible.
Home condition – Your home doesn’t need to be perfect, but it needs to be in at least reasonably good condition.
Credit scores – Minimum 500 credit score with income verification. Minimum 550 credit score without income verification.
Derogatory credit – No bankruptcies, short sales, or foreclosures in the last three to five years. Investor guidelines regarding credit will likely vary.
Late payments – No 90-day late payments on any mortgage in the past two years. No 120-day late payments on any mortgage in the last three years.
Debt-to-income – Maximum debt-to-income ratio of 45%. You may be able to pay off debt to qualify.
Again, this is just a general rundown of the potential HEA loan requirements you may encounter. Requirements will vary from one investor to the next and additional requirements may apply.
How Homeowners Use A Home Equity Agreement
A home equity agreement 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:
Reduce monthly expenses by paying off high interest auto loans, personal loans, and credit cards.
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 HEA 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 HEA 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.
Like any financial product, a home equity agreement is not the perfect solution for every homeowner. In our opinion, you may be a good candidate if:
You want to avoid a monthly payment – Home equity loans always have monthly payments. The HEA loan could be a good option if you prefer not to add another payment to the budget.
You have limited income or can’t prove your income – Home equity loans require proof of a certain amount of income. The HEA has no minimum income requirements and you don’t need to prove your income if your credit scores are at least 550. An HEA loan could be a good option if you have high expenses, limited income, or have difficulty documenting your income (such as if you’re self-employed).
You have damaged credit – Home equity loans typically require good credit scores to qualify. If you have damaged credit, the HEA may be a more workable solution.
You’re too young for a reverse mortgage or a reverse mortgage doesn’t otherwise make sense.
You plan to sell your home in the next few years. Remember, an HEA has a contract term. If you don’t sell your home within the contract term, you may need to buy out the investor with cash, a new mortgage, or some combination of both.
If you decide to look into a home equity agreement, make sure you thoroughly understand the terms before you sign the final agreement. The HEA is a legitimate product, but it’s different than what most people are used to.
If you’d like some additional explanation about how a home equity agreement works, check out the video below from a YouTuber who helped a client get one.
The problem with these traditional options is that they come with payments, credit and income requirements, or age requirements that aren’t workable for many homeowners.
Home equity line of credit (HELOC) – HELOCs enable you to borrow against your home equity at your convenience on a revolving basis. Interest rates are variable, which means your payment can increase if rates rise. Your payment is initially interest-only, but is typically re-amortized at the end of ten years into a full principal and interest payment, which can double or triple your payment. You typically need good credit and income to qualify for a HELOC. The advantage of the HEA vs HELOC is that the HEA doesn’t have a payment or an interest rate that can increase over time.
Cash out refinance – If you have an existing mortgage, you may be able to refinance it and take out additional equity. You’ll need good income and at least fair credit (credit score of 620 or better) to qualify, but it’s best to have good or excellent credit to keep the rate and closing costs reasonable.
Home equity loan – A home equity loan enables you to borrow a lump sum and repay it over 10 to 15 years. Most home equity loans have fixed interest rates, but the rates are usually higher than HELOC and cash out refinance rates. The payments also tend to be higher because the loan terms tend to be shorter. You’ll need to have at least decent credit and income to qualify.
HECM reverse mortgage – If you’re over 62, a HECM reverse mortgage offers access to home equity without a mortgage payment and without giving up ownership of your home. There is no minimum credit score required and you don’t need a lot of income to qualify. You can take the proceeds as a lump sum, line of credit, monthly term/tenure income, or some combination of all of these options. The reverse mortgage is a great product, but the closing costs can be steep, interest accrues on the loan balance, and you have to be old enough to qualify.
The home equity agreement could be a viable alternative for many homeowners. It offers a cash lump sum of up to $500,000 with no monthly payments, no interest charges, and no minimum income requirements, even if you have bruised credit.
You remain the owner of your home and you’re free to sell it at any time.
Many homeowners who look at HEAs are also considering a HELOC. The advantage of the HEA vs HELOC is that the HEA doesn’t have a payment or an interest rate that can increase over time. The HEA also has less stringent qualifying requirements than a HELOC.
Other Considerations
The home equity agreement is a legitimate product, but there are some things you’ll want to consider before signing on the dotted line:
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 pay off the HEA with cash and/or another loan. The contract term usually lasts at least ten years, so at least you have a large time window to work within.
Closing costs – The HEA typically comes with at least some closing costs, including origination, title, escrow, recording, appraisal, credit report, etc.
Additional fees at buy out – You may have to pay additional title, reconveyance, escrow, appraisal, and administration fees when the HEA company processes the final buyout. Make sure to ask about these before you close.
Maintenance adjustment – As with a traditional home equity loan, it’s important to maintain your home. If you let your home fall apart, the HEA company may assess a “maintenance adjustment” on your home’s value at the end of the contract. In other words, they increase the final value to what the home should be worth had it been maintained, then figure their buy out based on that number.
Difficulty getting a regular mortgage – HEAs 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 the home equity agreement.
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.
Complex and unfamiliar terms – Home equity agreements 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.
Not available in all states – Home equity agreements are not available in all states.
As you can see, a home equity agreement is a viable product, but there are some things to watch out for. As long as you uphold your end of the bargain, it could be a great way to access home equity to consolidate debt, cover medical bills, do home improvements, or make a large purchase. Just make sure you understand the terms and potential downsides thoroughly before you sign the final agreement. You may want to enlist a trusted advisor to review the terms as well.
Remember, even though there’s no payment or interest, it’s not without cost. You’re just deferring the cost to a future date.
Where to Find Investors
The HEA industry is relatively 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 check your eligibility, we recommend starting with Unlock, a leading provider rated “Excellent” on Trustpilot.
HEA stands for home equity agreement, which is a unique and little-known way of tapping your home’s equity without giving up ownership of your home or taking on a mortgage payment. Many homeowners use such agreements to consolidate debt, make home improvements, or supplement income and assets.
What is an HEA and how does it work?
HEA stands for home equity agreement. A home equity agreement is a unique way to tap into your home’s equity without taking on a monthly payment or selling your home.
What is the point of the HEA?
The purpose of a home equity agreement, or HEA, is to unlock home equity without giving up ownership of your home, taking on a mortgage payment, or paying mortgage interest. Many homeowners use such agreements to consolidate debt, make home improvements, or supplement income and assets.
How much do you get with an HEA?
Depending on your credit situation, home value, and existing mortgage balances, HEA companies tend to offer 10% to 30% of your home’s value in cash. No mortgage payments are required and no interest is charged on the money.
Are HEA loans good?
An HEA loan is a legitimate way to convert home equity into cash, but whether it’s good for you depends on your goals and qualifications. The advantage of the HEA is that there are no monthly payments or interest charges to worry about. It’s also typically easier to qualify for an HEA than a traditional home equity loan or HELOC. You don’t need perfect credit and you often don’t need to prove income.
What is HEA?
HEA stands for home equity agreement, which is a unique and little-known way of tapping your home’s equity with no monthly payment or interest charges. Many homeowners use such agreements to consolidate debt, make home improvements, or supplement income and assets.
Our content may contain affiliate links. If you click a link and make a purchase, we may receive compensation at no added cost to you. We work hard to provide great resources and information. We appreciate your support!
A home equity agreement, or HEA, is a 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.
Table of Contents
What is a Home Equity Agreement (HEA)?
If you’ve checked into a home equity loan lately, you probably already know that interest rates have increased a lot. And, of course, higher rates means higher monthly payments on home equity loans.
These days, a home equity loan can 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 is no longer the only game in town. There is a new option available that could make sense for many homeowners: the home equity agreement.
How The HEA Loan Works
A home equity agreement, or HEA, 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.
Home equity agreements can be structured in various ways, but here’s how they generally work:
The HEA offers access to your home equity with no monthly payment and no interest charges.
Cash lump sum – You receive a large lump sum of cash based on the equity in your home. Payouts can be anywhere from $30,000 to $500,000.
No monthly paymentsand 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.
Home equity agreements 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 agreement, or HEA, offers access to home equity with no mortgage payments, no interest charges, and without giving up ownership of your home, even if you have poor credit and difficulty proving income.
HEA Loan Requirements
HEA loan requirements vary from one investor to the next, but here are some common requirements:
Homeownership – You need to own a home and have significant equity in your home. How much home equity you need could vary depending on the company you’re working with.
Occupancy – Primary residences, second homes, and rentals are eligible.
Home condition – Your home doesn’t need to be perfect, but it needs to be in at least reasonably good condition.
Credit scores – Minimum 500 credit score with income verification. Minimum 550 credit score without income verification.
Derogatory credit – No bankruptcies, short sales, or foreclosures in the last three to five years. Investor guidelines regarding credit will likely vary.
Late payments – No 90-day late payments on any mortgage in the past two years. No 120-day late payments on any mortgage in the last three years.
Debt-to-income – Maximum debt-to-income ratio of 45%. You may be able to pay off debt to qualify.
Again, this is just a general rundown of the potential HEA loan requirements you may encounter. Requirements will vary from one investor to the next and additional requirements may apply.
How Homeowners Use A Home Equity Agreement
A home equity agreement 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:
Reduce monthly expenses by paying off high interest auto loans, personal loans, and credit cards.
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 HEA 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 HEA 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.
Like any financial product, a home equity agreement is not the perfect solution for every homeowner. In our opinion, you may be a good candidate if:
You want to avoid a monthly payment – Home equity loans always have monthly payments. The HEA loan could be a good option if you prefer not to add another payment to the budget.
You have limited income or can’t prove your income – Home equity loans require proof of a certain amount of income. The HEA has no minimum income requirements and you don’t need to prove your income if your credit scores are at least 550. An HEA loan could be a good option if you have high expenses, limited income, or have difficulty documenting your income (such as if you’re self-employed).
You have damaged credit – Home equity loans typically require good credit scores to qualify. If you have damaged credit, the HEA may be a more workable solution.
You’re too young for a reverse mortgage or a reverse mortgage doesn’t otherwise make sense.
You plan to sell your home in the next few years. Remember, an HEA has a contract term. If you don’t sell your home within the contract term, you may need to buy out the investor with cash, a new mortgage, or some combination of both.
If you decide to look into a home equity agreement, make sure you thoroughly understand the terms before you sign the final agreement. The HEA is a legitimate product, but it’s different than what most people are used to.
If you’d like some additional explanation about how a home equity agreement works, check out the video below from a YouTuber who helped a client get one.
The problem with these traditional options is that they come with payments, credit and income requirements, or age requirements that aren’t workable for many homeowners.
Home equity line of credit (HELOC) – HELOCs enable you to borrow against your home equity at your convenience on a revolving basis. Interest rates are variable, which means your payment can increase if rates rise. Your payment is initially interest-only, but is typically re-amortized at the end of ten years into a full principal and interest payment, which can double or triple your payment. You typically need good credit and income to qualify for a HELOC. The advantage of the HEA vs HELOC is that the HEA doesn’t have a payment or an interest rate that can increase over time.
Cash out refinance – If you have an existing mortgage, you may be able to refinance it and take out additional equity. You’ll need good income and at least fair credit (credit score of 620 or better) to qualify, but it’s best to have good or excellent credit to keep the rate and closing costs reasonable.
Home equity loan – A home equity loan enables you to borrow a lump sum and repay it over 10 to 15 years. Most home equity loans have fixed interest rates, but the rates are usually higher than HELOC and cash out refinance rates. The payments also tend to be higher because the loan terms tend to be shorter. You’ll need to have at least decent credit and income to qualify.
HECM reverse mortgage – If you’re over 62, a HECM reverse mortgage offers access to home equity without a mortgage payment and without giving up ownership of your home. There is no minimum credit score required and you don’t need a lot of income to qualify. You can take the proceeds as a lump sum, line of credit, monthly term/tenure income, or some combination of all of these options. The reverse mortgage is a great product, but the closing costs can be steep, interest accrues on the loan balance, and you have to be old enough to qualify.
The home equity agreement could be a viable alternative for many homeowners. It offers a cash lump sum of up to $500,000 with no monthly payments, no interest charges, and no minimum income requirements, even if you have bruised credit.
You remain the owner of your home and you’re free to sell it at any time.
Many homeowners who look at HEAs are also considering a HELOC. The advantage of the HEA vs HELOC is that the HEA doesn’t have a payment or an interest rate that can increase over time. The HEA also has less stringent qualifying requirements than a HELOC.
Other Considerations
The home equity agreement is a legitimate product, but there are some things you’ll want to consider before signing on the dotted line:
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 pay off the HEA with cash and/or another loan. The contract term usually lasts at least ten years, so at least you have a large time window to work within.
Closing costs – The HEA typically comes with at least some closing costs, including origination, title, escrow, recording, appraisal, credit report, etc.
Additional fees at buy out – You may have to pay additional title, reconveyance, escrow, appraisal, and administration fees when the HEA company processes the final buyout. Make sure to ask about these before you close.
Maintenance adjustment – As with a traditional home equity loan, it’s important to maintain your home. If you let your home fall apart, the HEA company may assess a “maintenance adjustment” on your home’s value at the end of the contract. In other words, they increase the final value to what the home should be worth had it been maintained, then figure their buy out based on that number.
Difficulty getting a regular mortgage – HEAs 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 the home equity agreement.
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.
Complex and unfamiliar terms – Home equity agreements 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.
Not available in all states – Home equity agreements are not available in all states.
As you can see, a home equity agreement is a viable product, but there are some things to watch out for. As long as you uphold your end of the bargain, it could be a great way to access home equity to consolidate debt, cover medical bills, do home improvements, or make a large purchase. Just make sure you understand the terms and potential downsides thoroughly before you sign the final agreement. You may want to enlist a trusted advisor to review the terms as well.
Remember, even though there’s no payment or interest, it’s not without cost. You’re just deferring the cost to a future date.
Where to Find Investors
The HEA industry is relatively 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 check your eligibility, we recommend starting with Unlock, a leading provider rated “Excellent” on Trustpilot.
HEA stands for home equity agreement, which is a unique and little-known way of tapping your home’s equity without giving up ownership of your home or taking on a mortgage payment. Many homeowners use such agreements to consolidate debt, make home improvements, or supplement income and assets.
What is an HEA and how does it work?
HEA stands for home equity agreement. A home equity agreement is a unique way to tap into your home’s equity without taking on a monthly payment or selling your home.
What is the point of the HEA?
The purpose of a home equity agreement, or HEA, is to unlock home equity without giving up ownership of your home, taking on a mortgage payment, or paying mortgage interest. Many homeowners use such agreements to consolidate debt, make home improvements, or supplement income and assets.
How much do you get with an HEA?
Depending on your credit situation, home value, and existing mortgage balances, HEA companies tend to offer 10% to 30% of your home’s value in cash. No mortgage payments are required and no interest is charged on the money.
Are HEA loans good?
An HEA loan is a legitimate way to convert home equity into cash, but whether it’s good for you depends on your goals and qualifications. The advantage of the HEA is that there are no monthly payments or interest charges to worry about. It’s also typically easier to qualify for an HEA than a traditional home equity loan or HELOC. You don’t need perfect credit and you often don’t need to prove income.
What is HEA?
HEA stands for home equity agreement, which is a unique and little-known way of tapping your home’s equity with no monthly payment or interest charges. Many homeowners use such agreements to consolidate debt, make home improvements, or supplement income and assets.
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.
