If you’re looking to access the equity in your home but you’re not looking forward to the new monthly payments that come with a loan, it’s time to take a close look at Hometap. It provides an opportunity to receive debt-free cash by selling a percentage of the equity in your home. The cash can be used for just about any purpose. Pay off credit card debt. Buy a second home. Or even start a new business.
When you sell the home or settle the investment, you pay Hometap an agreed-upon percentage of the then-current appraised value of the home.
What Is Hometap?
Boston-based Hometap was founded in 2017 and is a home equity investment service. That is, it provides customers with cash for the equity in their homes but without the burden of monthly payments. Hometap has a Better Business Bureau rating of A+, the highest rating on a scale of A+ to F. It’s also received 4.9 out of five stars on Trustpilot, with 92% of reviewers giving it an “excellent” rating.
What Does Hometap Offer?
Hometap offers homeowners an opportunity to access part of their home equity without taking on monthly payments.
Rather than making monthly payments, you get cash for the equity in your home. Hometap gives you that cash in exchange for a share of the home’s future value, which can be up to 10 years in the future.
So you save the money from the loan repayments that you won’t be making. And you can use the cash proceeds for just about any purpose. For example, use the equity to pay off other debts such as credit cards. Then you get the cash flow benefit of having eliminated those monthly payments.
Or use the funding to start a business. After all, business loans are notoriously difficult to come by, especially for startups. Hometap can help provide financing for your business without the need to go through the grueling application process business loans typically require. And no monthly payment means one less obligation while you are building up your business.
There’s no loan on your home, because Hometap makes an investment in your property in exchange for the equity it provides. When you sell or refinance the home or when the investment term expires, Hometap receives a return on its investment. But between the time you receive your equity and you settle the investment, there’s nothing more you need to do.
Main Features of Hometap
|Availability||14 states, including Arizona, California, Florida, Massachusetts, Maryland, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Virginia and Washington.|
|Maximum available investment||$400,000|
|Maximum investment term||10 years|
|Minimum homeowner equity||25% (a loan-to-value of no more than 75% of the home’s value).|
|Homeowner qualification||Hometap requires a minimum credit score of 600. But your credit report is not checked. Since no monthly payments are required, specific income qualification isn’t performed. However, you must be able to comfortably manage the monthly payment of the property’s current mortgage.|
|Investment settlement||Upon sale or refinancing of the home or when the investment term expires.|
How Does Hometap Work?
To qualify for a Hometap investment, you need to meet the following general qualifications:
- You own a single-family home or condo located in one of the 14 states where Hometap operates.
- Your FICO® credit score is above 600 (but there is no credit check).
- You have a minimum of 25% equity in your home.
- The investment amount you need is no more than $400,000 or 30% of your total home value, whichever is less.
If you meet the qualifications and an estimate of the investment Hometap makes is agreeable to you, an appraisal will be ordered on your property to determine its market value. The investment will be the amount of funds you request — up to 30% of the appraised value but no more than $400,000.
- It takes about three weeks after applying to finalize the investment. Then you receive the funds as a wire transfer into your bank account within four to seven days of signing the investment agreement.
- Since Hometap receives a share of equity in your home, it must be paid out by the end of the effective period. If the value of the home increases, Hometap makes more. If it declines, Hometap makes less (but always makes a profit).
- To close out the investment from Hometap, you pay the agreed-upon amount either upon the sale or refinance of your home, or at the end of the 10-year maximum term.
Miscellaneous Considerations Once the Investment Is Finalized
Once the investment has been funded by Hometap and received by you, you will be required to maintain the property and pay all expenses. That includes payment of your current mortgage, property taxes, insurance and any other recurring expenses.
Even though Hometap is an investor in your home, it won’t pay for maintaining it, nor does the company make any decisions as to how you use the home. It doesn’t even make periodic inspections of your property.
But you need to inform Hometap of any changes to your ownership of the property. That includes your intention to sell, to take on another investor or to make a major adjustment in your mortgage, such as a refinance.
Repaying Hometap for the Investment
If you don’t plan to sell your home at the end of the investment term, consider one of the following options to repay Hometap:
- Repay the investment out of your personal assets.
- Do a cash-out refinance of your first mortgage to repay the investment.
- Take a home equity loan or line of credit to repay the investment.
When Hometap appraises and evaluates your property, one of the factors it considers is the future value. If the value of the home increases by the time you pay back Hometap, you pay a higher dollar amount to Hometap, providing it with a bigger return on its investment.
Referring to the Home Equity Calculator results in the previous screenshot for a $400,000 home, you see that Hometap provides for higher repayment if the property value increases. If the house sells for only $360,000, you pay Hometap $98,750 (27.4%). But that increases to $176,949 (32.9%) if the home sells for $537,567. Since Hometap is taking a percentage investment in your property, the dollar amount of its return increases with the property value.
If the home declines in value, Hometap receives less money in exchange for its investment. That’s a risk it takes on as an investor. Unlike a lender, it’s not guaranteed repayment of a specific principal amount; it takes a percentage. But it always makes a profit on its investment.
Who Is Hometap For?
Hometap is for anyone who needs to access their home equity but doesn’t want the monthly payments that a home equity loan or line of credit brings.
It’s also an excellent choice if you’re looking for business financing. Such financing can be difficult to get even for an established business. It’s nearly impossible for a startup. But not only will a Hometap investment provide the cash you need for your business, but it also avoids the repayments that reduce your future cash flow.
You may also want to consider Hometap if you have only fair credit. Hometap requires a minimum credit score of 600. If your score that low, you may not be able to qualify for a home equity loan or line of credit. So Hometap may be a viable alternative if that describes your situation.
Hometap Fees & Limits
As noted above, the maximum equity you can receive out of your home is 30% of the total value, up to $400,000.
Hometap charges a fee of 3% of the investment amount. If the investment amount is $100,000, the fee will be $3,000, which will be taken out of your investment proceeds. That means you receive $97,000 for a $100,000 investment.
No other fees are payable directly to Hometap. However, there are certain third-party costs you should be aware of. Three of the most significant costs are:
- Full appraisal by a third party to determine the market value of your home. This fee is waived if you can provide proof of an appraisal conducted no more than three months previously.Cost: $599 ($800 in Oregon)
- Title change charges, including attorney costs, settlement fees and property reports.Cost: $700–$800
- Government recording and transfer fees.Cost: $370–$1,000
How Do I Open an Account?
You start the process by taking the Hometap Fit Quiz. It’s a five-step assessment that takes about two minutes to complete.
The Hometap Fit Quiz Steps
Step 1: Are you a homeowner? What state is your property located in?
Step 2: Indicate the purpose of the needed equity. That includes the following choices:
Step 3 consists of five questions:
- What is your ideal investment amount? (between $15,000 and $400,000)
- Is this your forever home? Options are:
- Yes, I plan to sell in 6–10 years.
- I plan to sell in 1–5 years.
- I don’t know.
- Are you considering any other option alongside Hometap? (Options are home-equity loan, home equity line of credit, personal loan, reverse mortgage, cash-out refinance, another home equity investor, or none of the above)
- How would you describe your “rainy day fund”? (Options range from “I don’t have one” to “I feel very confident in the amount I have saved”)
- Do you ever worry about covering monthly expenses? (Yes/No)
Step 4: Supply your name, email address and phone number.
Step 5: Get your results.
When I completed the Fit Quiz I got the following results:
You then provide more detailed information about your property to determine its eligibility. You also provide specific information about yourself and your financial profile. Alternatively, you can schedule a call with an investment guide who will walk you through the process.
- If Hometap believes an investment is possible, it sends you an investment estimate, which includes specific terms for your property. A Hometap investment manager will set up a call and walk you through the application process and answer any questions you have.
- The full application takes about 20 minutes and may require scanning documents to upload to Hometap. A physical appraisal of your property will be scheduled and performed by a third-party appraiser. Investment details will be finalized once the appraisal is complete.
- You can then sign the documents and begin the transfer of funds.
How’s the Customer Service?
Hometap can be contacted by phone Monday through Thursday from 8:00 A.M. to 8:00 P.M., Eastern Time, and on Fridays from 8:00 A.M. to 5:00 P.M.
Or you can contact the company through its contact page on its website. You need to provide your contact information, including your preferred method of communication and a description of your question or issue.
Is Hometap Safe?
No specific information is provided on the website about the security of the service. But it states that Hometap “has implemented measures intended to secure your information from accidental loss and from unauthorized access, use, alteration, and disclosure.”
Hometap Pros & Cons
- Get money for the equity in your home — You can access up to $400,000 in equity in your home without taking a loan.
- No monthly payments — Because Hometap is not a lender, there are no monthly payments to make.
- Easy to qualify — You don’t need to qualify for the investment, other than to demonstrate the ability to manage your current monthly payments successfully.
- Great funding options — Hometap is an especially excellent source of funds for business financing.
- Good funding alternative — Excellent alternative funding source if you can’t qualify for a home equity loan or line of credit.
- Hometap becomes an investor in your home — You will be taking on a “partner” in the ownership of your home, a partner that shares in the net proceeds from the sale of the property.
- You can be forced to sell — If you’re unable to sell the home at the end of the investment term, and financing options aren’t available, Hometap can force you to sell the property at a discount to recover its investment.
- Limited availability — Hometap is available in only 14 states.
Best Alternatives to Hometap
If you like the idea of obtaining funds from an investment in your property but prefer a service other than Hometap, an option is a similar service called Unison. It works similarly to Hometap but provides up to $500,000 in funds, though the maximum investment will be 17.5% of your home’s value (considerably less than Hometap’s 30%). And the investment term is as long as 30 years (considerably longer than Hometap’s 10-year maximum). The fee for the service is the same as with Hometap, 3% of the investment amount.
If you don’t like the idea of effectively selling a slice of your home to an outside investor, you may prefer using a loan to tap the equity in your home.
Banks and credit unions are ready sources of both home equity loans and home equity lines of credit. But if you prefer not to add indebtedness to your home, you can also consider personal loans.
Credible is an online personal loan marketplace, where you can obtain loans ranging from as low as $600 to as much as $100,000. The major advantages with a personal loan are that the funds can be used for any purpose and are completely unsecured.
Still another source is obtaining credit from an investment account. For example, if you have an account with Wealthfront, you can borrow up to 30% of the value of your account at a very low interest rate and for any purpose. You must have a minimum account balance of $25,000 to qualify. And equally important, you can access the funds immediately with no credit qualification required.
Bottom Line — Is Hometap Worth It?
If you’re looking for a way to take advantage of the equity in your home but don’t want the burden of the monthly payments that come with a loan, Hometap is a viable alternative.
It’s also worth considering if you want to tap the equity in your home without the restrictions that may come with loans. This can be especially important if you want funds for your business, where funding options are limited and funding difficult to obtain. But you may also want to consider it if your credit isn’t quite good enough to qualify for typical home-equity loans.
If you’re looking for access to the equity in your home for any reason, you owe it to yourself to give Hometap a try.