Some people own homes that have risen in value, but they can’t benefit from it. Some people might prefer not to take out a home equity loan because they want to avoid another monthly payment. Hometap Review: Pros, Cons,
Hometap gives you access to your home’s equity in a different way. They don’t lend money; they put money into the home. The homeowner gets money equal to the amount of the investment. This is a different way to think about home equity. Let’s find out how it works.
Who Is Hometap?
Hometap (Hometap Equity Partners, LLC) is a fintech company that provides an alternative method for accessing home equity. The company is based in Cambridge, MA, and was founded in 2017. Its CEO is Jeff Glass. It has raised $95 million to date. Hometap Review: Pros, Cons,
“We’ve been working diligently towards our mission of making homeownership less stressful and more accessible for as many U.S. homeowners as possible, and we’ve had tremendous success thus far…” said Glass to AP News. “…But there’s a lot more work to be done to make home equity investments an option that’s available to everyone.” Hometap Review: Pros, Cons,
What Do They Offer?
Hometap gives you access to your home’s equity in a different way. They don’t lend money; they put money into the home. The homeowner gets money equal to the amount of the investment. This approach is a different way to think about home equity. Let’s find out how it works. HomeTap provides funds to homeowners by investing in their houses. This is similar to a venture capital partner investing in a business. The venture partner will make a return on their investment if the business grows in value. Hometap Review: Pros, Cons,
It’s the same with Hometap. The home must appreciate the company’s investment to generate a return. Hometap allows its investment to appreciate over a period of 10 years. If the home has not appreciated after 10 years, the company will likely take a loss on its investment. Hometap Review: Pros, Cons,
Not A Loan
Could you please clarify what Hometap is doing if it is not a loan? Hometap is taking equity in the home by providing the homeowner with an investment. The homeowner can use the invested funds however they like. Since the invested funds are not a loan, there are no monthly payments. Hometap’s investment is more like a shared home equity agreement. They are investing purely in the future value of the home. There is no credit check, although Hometap likes to see FICO scores above 585. Hometap Review: Pros, Cons,
Hometap makes a return on its investment when the home is sold or refinanced. You can exit the investment by buying out Hometap. This might be with savings or by taking out a home equity loan
No Inspections
HomeTap doesn’t invest blindly in a home. Homeowners don’t have to worry about inspections to receive funds but an appraisal is required. After all, they’re trying to predict what the home’s value will be in 10 years. Hometap Review: Pros, Cons,
Investment Requirements
Hometap’s process isn’t as involved as getting a traditional bank loan. However, they do have a few qualities that they say tend to make for a good fit, as stated in their FAQ. These are: Hometap Review: Pros, Cons,
- A credit score above 585
- A minimum of 25% equity in your home
- An investment amount that’s less than 25% of your home’s value
Note that the maximum amount that HomeTap is able to invest in a single property is $600,000.
During the investment period, Hometap requires homeowners to maintain the mortgage, homeowners insurance, and property taxes and to keep the house in excellent shape: Hometap Review: Pros, Cons,
Availability
HOmeta is not yet available nationwide. As of this writing, it’s possible to invest in properties that are located in the following states:
- Arizona
- California
- District of Columbia
- Florida
- Indiana
- Michigan
- Minnesota
- Missouri
- Nevada
- New Jersey
- New York
- Ohio
- Oregon
- Pennsylvania
- South Carolina
- Utah
- Virginia
10-Year Payback
TThe biggest risk with HomeTap would be its inability to pay back the investment at the 10-year mark. Hometap says you can sell your home, take out a loan, or use cash savings to pay back the investment. Hometap Review: Pros, Cons,
However, what if none of those are an option? In that case, a homeowner could take out a second home equity investment, or in a worse case scenario, Hometap can force the sale of your home to recoup its investment. AAdditionally, you’ll have to pay back a larger amount if the home’s value has increased significantly. IIf you don’t have access to enough cash or financing, your only option might be to sell your home. Hometap Review: Pros, Cons,
But there is still a risk there—what happens if you aren’t able to sell the home for the listed market value? You could still end up in a forced-sale situation.
While ten years is a fairly long time, it’s not as long as some of Hometap’s competitor’s give homeowners to settle their investments. FFor example, Unison and Point offer terms that are three times as long (up to 30 years).
Hometap vs. HELOC
MAny homeowner considering a HomeTap investment will want to know how it compares to a home equity line of credit (HELOC). SLet’s take a closer look at their benefits and drawbacks. Hometap Review: Pros, Cons,
WI’ll start with the biggest difference between the two. A home equity investment is not a loan whereas a HELOC is. A home equity investor only makes money if the home’s value increases. A HELOC lender makes money on interest, which is paid monthly. FFor the borrower, since a HELOC is a loan, there will always be a cost. BThey usually have a 10-year minimum term.
A HELOC will have a higher maximum loan amount (up to 85%). Hometap caps its investment at 25% of the home’s value or $600,000. WWith a few high-level concepts out of the way, let’s crunch some numbers. Hometap Review: Pros, Cons,
Costs Of A Hometap Investment
The cost of a Hometap investment depends on when the homeowner settles their investment. TThe maximum “upshare” assumes the homeowner settles at the end of the 10-year term.
If the homeowner settles in the first 36 months, the Hometap Share is lowered. IIf the homeowner settles between months 37 and 72 (years 4, 5, and 6), the HomeTap share will be lower.
If a home has gone down in value, Hometap applies the lowest HoHometap Review: Pros, Cons,metap Share, regardless of when the homeowner settles
A homeowner can see how the Hometap Share is calculated under different scenarios in the estimate tool on their site. The current multipliers are (as of July 2024):
- Settlement in 1-3 years: 1.5x multiplier on the investment
- Settlement in 4-6 years: 1.78x multiplier on the investment
- Settlement in 7-10 years: 2x multiplier on the investment
Basically, if you settle in 10 years, the 20% share is multiplied by 2x, meaning Hometap would need to be paid back 40% equity on the appreciated value.
Let’s say you have a home that is currently worth $300,000. Hometap takes a 20% equity stake in the home. You receive $60,000 minus the 4.5% fee for a net of $57,900.
Seven years later, the home has increased to $400,000. Hometap’s original 20% investment is now worth $160,000 (due to the 2x multiplier). If you sell your home for $400,000, you’ll need to pay back $160,000 to Hometap.
Looking at it another way, you paid $100,000 to borrow $60,000 for seven years. And yes, it is not really borrowing, but it did cost $100,000 to take possession of $60,000 for seven years (a very wordy way of saying, it’s a loan). Hometap Review: Pros, Cons,
On the other hand, the investment could work in the homeowner’s favor. If the home’s value falls to $275,000 after seven years, Hometap’s investment will drop to $82,500. Given the direction of home values over the long-term, looking for the value to drop probably isn’t the highest probability bet. Hometap Review: Pros, Cons,
Taking a smaller investment will minimize the investment’s impact no matter which direction the housing market goes. Going with the first example of the home value increasing to $400,000, a 10% investment will increase from $30,000 to $80,000. A 5% investment will increase from $15,000 to $40,000. How much investment to take really depends on what the homeowner is comfortable with.
In addition to Hometap’s fee, factor in a few hundred to a few thousand dollars for related document and filing costs.
Costs Of A HELOC
So how does Hometap compare to the cost of a HELOC? Many HELOCs come with adjustable rates and a few hundred dollars per year in fixed fees. We’ll use 6% and $300 for our fees.
Taking out the same $60,000 for seven years, we’ll have a monthly payment of $877 and total interest of $13,627. We also need to add in our annual fee of $300 x 7 = $2,100, for a total of $15,727. Hometap Review: Pros, Cons,
However, over seven years, the interest rate will adjust. Considering the adjustable rate, we probably wouldn’t be too far off to say the total HELOC cost is around $20,000.
But what if the home’s value increases to $450,000 or $500,000? That means Hometap’s equity increases as follows: