A home equity investment gives homeowners more flexibility in accessing home equity.
One of the biggest benefits of being a homeowner is building home equity with each monthly mortgage payment and through property appreciation. You can borrow against that equity for any reason, and two of the most popular ways to do it are through HELOCs and home equity loans. However, there is a third way to access home equity that doesn’t require any monthly loan payments. It’s called a home equity investment, and if you’re asking yourself, “What is a home equity investment,” you’ve come to the right place. Benzinga and our team of experts break it down for you below.
What is a Home Equity Investment?
A home equity investment, also known as a home equity agreement, allows homeowners to tap into their home equity. Michael Micheletti, chief communications officer at Unlock Technologies, briefly summarizes what these investments entail.
“A home equity agreement, also called a home equity agreement (HEA), is a no-loan option for homeowners looking to tap equity that they have built up in their homes,” Micheletti explains. “In an HEA, a homeowner receives an upfront payment in exchange for a portion of their home’s future value.”
The fact that it’s a no-loan option has significant ramifications. First, you can tap into home equity even if you have bad credit. While HELOC and home equity loan providers will turn you away if you have a 500 FICO score, you can still get capital from a home equity investment with a low credit score. Lenders offering home equity investments are also more flexible than home equity loan and HELOC requirements you will find with traditional lenders.
You also don’t have to make any monthly loan payments with this option, whereas you must budget for regular HELOC or home equity loan payments. However, there are trade-offs with any financial product, and it’s good to know how a home equity investment works before committing to it.
How Does a Home Equity Investment Work
While HELOCs and home equity loans are loans you must repay over time, you aren’t obligated to repay a home equity investment each month. Instead of receiving capital you must repay, the home equity investment lender gets equity in your home.
For instance, if a homeowner with a $1 million home receives $100,000 from a home equity investment lender, that lender gets a 10% stake in the home. If the house doubles in value to $2 million, the lender’s 10% stake is now worth $200,000.
Home equity investments can become problematic for people who want to retain full ownership of their home’s equity. However, they’re a valuable way for some homeowners to access home equity. Micheletti explains which types of homeowners tend to benefit the most from home equity agreements.
“The HEA makes sense for a homeowner who needs cash now and does not want to or cannot, take on additional monthly payments that would come with a loan option.”
He also shared Unlock’s recent survey results demonstrating a rising demand for this financing option.
“Unlock just completed a survey of U.S. homeowners and learned that 9% of homeowners are planning to tap their home equity this year. But more than four times that many – 42% - said they would consider accessing their equity if they could do so without a loan or taking on another monthly payment. This tells us that many homeowners holding substantial equity in their homes may not yet realize that home equity agreements (HEAs) can meet their needs.”
Steps to Get a Home Equity Investment
Homeowners interested in this type of financing can complete the following steps to secure a home equity agreement.
Step 1: Calculate How Much Home Equity You Need
Before researching any lenders or contacting them, review your expenses and assess how much home equity you need. Asking for too little home equity may result in you needing to contact the lender again. However, requesting too much home equity may result in giving up a larger stake in your home than necessary.
Step 2: Research HEA Lenders
Not every traditional bank offers home equity investments, and they aren’t allowed in every state. You will have to verify that your state allows home equity agreements and then do some research. Once you research HEA lenders and find a few top options, reach out. It’s good to contact multiple lenders to see which offers the most competitive terms.
Step 3: Get an Estimate
A home equity investment lender will require a home appraisal during the process. This appraisal allows both parties to determine how much equity is in your home. You can use this figure to gauge whether working with the HEA lender will give you enough capital.
This step indicates what your home is worth, but you’ll also learn how much a lender is willing to provide. Lenders use several variables to determine how much home equity you can access.
Step 4: Review the Terms
A home equity investment reveals how much you will receive and the stake the lender will get in return. However, it also includes details about the repayment. Most home equity investments have 5- to 30-year terms. Once the term concludes, you must repay what you borrowed plus any appreciation. Homeowners may be able to negotiate an extended term.
The terms will also include information about any extra charges if you decide to repay the lender early. It’s a good idea to review terms from multiple lenders to ensure you are receiving the most competitive option.
Step 5: Receive Your Money
Once you reach an agreement, you will immediately receive the money. Homeowners can use the money for any reason and do not have to notify the lender.
Step 6: The Agreement Ends
The agreement typically ends in 5 to 30 years and comes with a balloon payment. This is essentially the price homeowners have to pay for not making monthly loan payments. However, if the house doesn’t appreciate much during that time, the extra payment won’t be as high.
You can also buy back your stake in the home to end the agreement, but there are two other ways the term can conclude early. You must immediately pay the home equity investment lender if you refinance or sell your property. Homeowners cannot refinance, take out home equity loans or open HELOCs while in a home equity agreement. That’s a disadvantage homeowners should consider before committing to this financing option.
It may be easier to navigate the end of a home equity agreement after you sell your property. That way, you can use some of the proceeds from the home sale to cover the HEA.
Using a Home Equity Investment to Access Home Equity
Home equity investments make it easier for people with low credit scores to tap into their home equity. The lack of monthly loan payments also makes it easier for people living paycheck to paycheck who can’t afford an extra loan payment. However, you have to weigh the risks of these financial products before using them.
Why You Should Trust Us
Benzinga has guided readers on their financial journeys for over 15 years and brings on experts who know the intricacies of real estate investing and tapping into home equity.
Additionally, I am a Certified Personal Finance Counselor (CPFC) and have been a writer for Benzinga since 2021. I have also contributed to other finance publications such as U.S. News & World Report, Business Insider and Newsweek.
FAQ
What is the downside of a home equity investment?
The main downside of a home equity investment is that the lender’s stake will grow as your home appreciates. However, another risk is that you must buy back the stake after the term ends or when you sell your home, resulting in a balloon payment. Finally, you cannot take out HELOCs, home equity loans or refinance while having a home equity investment.
Are equity investments a good idea?
Home equity investments can be a good idea for people with bad credit scores who need access to equity. They’re also convenient for people who can’t afford the monthly loan payments of a HELOC or a home equity loan.
Can you pay back a home equity investment?
Yes. You can buy out a lender and pay back the home equity investment. You should review the terms to assess how much a buyout will cost and whether there are any prepayment fees.
Sources
Micheletti, Michael. Personal interview with the author. 23 Feb. 2025.
Unlock. 2025 Economic Outlook: Homeowners Feeling the Pinch. https://www.unlock.com/blog/personal-finance/2025-economic-outlook-homeowners-feeling-the-pinch/
About Marc Guberti
Marc Guberti is an investing writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.