Understanding Home Equity Sharing Agreements: A Complete Guide to This Alternative Financing Option

What Is a Home Equity Agreement and How Does It Differ?

A home equity sharing agreement represents an increasingly popular financing mechanism that fundamentally differs from traditional home equity options. Unlike home equity loans or HELOCs that tap into your current equity, a home equity sharing agreement lets you access funds based on your future home equity potential. This distinction matters significantly because it opens doors for borrowers who might not qualify for conventional lending products due to income, credit, or cash flow constraints.

The mechanics are straightforward: an investment company provides you with a lump sum payment—essentially an equity advance. In return, they receive the contractual right to claim a predetermined percentage of your home’s future value. The beauty of this arrangement lies in its flexibility—no monthly payments, no accrued interest, and the ability to exit whenever you choose.

How the Home Equity Sharing Process Actually Works

When you enter a home equity agreement, the investment firm will commission an independent appraiser to determine your property’s current value. Some companies then adjust this appraised figure to establish your “starting value,” which becomes the baseline for calculating your borrowing capacity. This starting value protects investors against potential home depreciation while simultaneously giving them upside participation if your property appreciates.

Once you sign the agreement, the investor places a lien on your property. If you carry a mortgage, the investor takes second position behind your lender. This means if foreclosure occurs, the mortgage company receives payment first. However, you retain full ownership and can sell your home anytime before the agreement term ends.

The equity percentage you’ll share is locked in your contract upfront, determined by several factors: your home’s appraised value, current equity position, geographic location, and credit profile. Most agreements run between 10 to 30 years, though durations vary by provider.

Exit Strategy and Repayment Mechanics

When you decide to exit the agreement—whether through sale, refinancing, or reaching term end—you’ll owe the investment company their equity share. Your payment obligation hinges on three scenarios:

If your property appreciated, you pay the company either a percentage of your home’s ending value or a percentage of the appreciation itself. If your home value remained flat, you typically repay either a percentage of the ending value or return the original cash advance received. In a declining market, you might pay a percentage of the ending value, a portion of your original advance, or potentially nothing—depending on your specific contract terms.

The company’s equity share calculation uses the sale price or a newly conducted appraisal as the ending value. This final valuation directly impacts how much you ultimately owe.

Understanding the Real Costs Involved

Home equity sharing agreements aren’t free. You’ll encounter multiple fees throughout the process:

Upfront expenses include origination fees (typically 3-5% of your equity advance), appraisal fees ($200-$1,250), home inspection costs ($650-$1,050), title services ($200-$900), and escrow services ($250-$500).

Exit costs can be substantial. When you terminate the agreement, you’ll likely pay for another appraisal, inspection, title search, and escrow services. If you sell the property, real estate commission applies as well. Some borrowers face unexpected expenses they didn’t anticipate initially.

Shopping multiple providers is essential. Get quotes from several home equity agreement companies and compare them against traditional home equity loan alternatives to understand the total cost of borrowing across different timeframes.

Where to Access Home Equity Sharing Products

Traditional mortgage lenders, banks, and credit unions don’t offer these agreements. Instead, you’ll find them through specialized investment companies, many backed by venture capital funding. As of early 2024, availability remains geographically limited.

Geographic availability varies significantly by provider:

Aspire operates in California, Colorado, Florida, Massachusetts, and Washington. HomePace covers Arizona, Colorado, Illinois, Minnesota, North Carolina, Ohio, Tennessee, Utah, and Washington. HomeTap reaches residents in 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’s network extends across 26 states plus Washington, D.C., encompassing 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 currently serves portions of California, Colorado, Oregon, Utah, and Washington. Unison maintains the broadest footprint, operating in 29 states and Washington, D.C.: 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 serves 14 states: Arizona, California, Colorado, Florida, Michigan, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, and Washington.

Critical Considerations Before Committing

Home equity sharing agreements work best for borrowers lacking traditional financing options. However, several drawbacks warrant serious consideration. The forced sale clause—if you can’t repay the equity share, the investor can force property liquidation—creates significant risk. Additionally, you’re permanently splitting future appreciation with an external party, which could mean forfeiting substantial gains if real estate values surge.

Limited property types also matter; most companies only accept single-family primary residences, though some accept vacation homes or investment properties. The ongoing lien position affects your refinancing flexibility and adds complexity to future transactions.

These products suit specific situations—particularly for those with strong equity positions but challenged credit profiles or limited income documentation. For others, traditional home equity loans or lines of credit may prove more economical and flexible.