Sharing a portion of your home's future appreciation can help you raise cash now with no monthly payments

• Home equity sharing involves selling a slice of your home's future appreciation to an investor.
• These agreements have no monthly payments or interest.
• You can use them to tap your existing home's equity for cash or to cover the down payment to buy a house.

Home equity can be a valuable financial tool. You can borrow against it using traditional products like home equity loans, cash-out refinances, or home equity lines of credit. Or, thanks to newer tools called home equity sharing agreements, you can even sell a portion of it if you need cash. Home equity sharing can even cover some of the costs of buying your home in the first place.

What is home equity sharing? 

Home equity sharing is when you agree to share in the appreciation of your home's value. In exchange, you get a lump-sum payment you can use to cover expenses or, in the case of new homebuyers, use as your down payment.

The idea of shared equity isn't new, but it has grown more popular in recent years. Several companies offer home equity sharing agreements that can be used tap a home's equity, buy a home, or both.

"While equity sharing has been around since 2005, it has grown in popularity over the past five years," says David Shapiro, founder and CEO of home equity sharing company EquiFi. "The most prevalent use of equity sharing products is by existing homeowners seeking to access a portion of their home equity."

Home equity sharing agreements don't require payments, nor do they charge interest. This sets them apart from other home equity products, like home equity loans and home equity lines of credit (HELOCs).

"Equity sharing products are used to finance a home and are an alternative to borrowing," Shapiro says. "These products are not loans, do not charge an interest rate, and have no monthly payments. Instead, they share in the economics of the home with the homeowner when the contract ends."

How does home equity sharing work? 

The specific process for home equity sharing depends on the company you work with. Typically, they will appraise your property and then make you an offer: X amount of money in exchange for X amount of equity, plus a percentage of the home's future appreciation. 

"We have a third-party appraiser take a look at the home and determine its value," says Matt O'Hara, head of portfolio management and research at Unison, a home equity sharing company. "Based on this, we offer up to 17.5% — or up to $500,000 — of that value to the homeowner. Should they accept, they can use the cash however they please."

Homeowners make no payments until they sell the house or their agreement term ends (30 years in Unison's case, 10 years for some others). 

"They pay us back that original amount as well as a percentage of the home's change in value," O'Hara says. "If the home decreases in value, the payment to us also decreases. We only win when our homeowners do."

What companies offer home equity sharing?

You won't find home equity sharing agreements at your local bank or credit union, but lots of private companies offer them. Some call themselves "co-investors," since they invest in your home's future growth.

Here are some of the companies that do home equity sharing agreements:

• Unison: Based in San Francisco, Unison is a home equity sharing company that has been in business since 2013. It operates in 28 states and Washington D.C. 
• EquiFi: In business since 2015, EquiFi offers home equity sharing both for homebuyers and existing homeowners. The company is based in San Jose, California, and serves customers in that state California (though 16 other states are in the works). It offers home equity sharing agreements with no set repayment terms.
• Hometap: Hometap is a newer home equity sharing company based in Boston. The company has been in business since 2019 and offers equity sharing agreements in 18 states.
• Point: Offering equity sharing options for homebuyers and homeowners as well as home HELOCs, Point operates in 17 states and Washington, D.C. It is based in Palo Alto, California, and has been in business since 2015.
• Unlock: Started in 2021, unlock is one of the newest home equity sharing options. The San Francisco-based company also offers partial buyouts, which allow you to spread your repayment out over the course of 10 years.

Not all companies operate in every state, but most allow you to check property eligibility on their website. As O'Hara explains: "Homeowners can type in their home address on our website and see whether or not they qualify and receive a free estimate — without any risk to their credit or obligation to take the next step."

Pros and cons of home equity sharing 

The biggest benefit of home equity sharing is that it's not a debt. There are no monthly payments, no interest, and you can use the funds as you wish. 

Equity sharing agreements may also be easier to qualify for than a loan would be. For example, home equity sharing company Unlock allows for credit scores as low as 500. With a home equity line of credit, you can expect to need at least a 620 score to qualify.

On the downside, sharing in your home's future value could cost you big — particularly if your home appreciates a lot over the course of your agreement's term. Additionally, most equity sharing companies require you to pay them back in one single payment at the end of your term. This can result in a significant expense all at once. 

Home equity sharing also isn't available everywhere. And many companies won't get involved in rental properties, second homes, investment properties, multifamily homes, or more unique houses.

"Have you ever seen any of those 'House Hunters' episodes where one of the houses has an astroturf putting room or an enormous jacuzzi in the middle of a hot pink shag carpeted room? Homeowners in possession of such unconventional residences may not be able to partner with us," O'Hara says. 

Home equity sharing example

Here's a look at what getting a home equity sharing agreement would look like as a homeowner:

You'd fill out an application with the home equity sharing company of your choice. They'd send out a professional appraiser to evaluate your property and then make you an official offer.

If your home was valued at $500,000, for example, they might offer you 17.5% (Unison's maximum investment) — or $87,500. At the end of your 30-year term, they'll want that $87,500 back, plus a percentage of the equity you've gained over that period of time. If the agreement was 20%, for example, and your home jumped from $500,000 to $700,000 in value, you'd owe them an additional $40,000 (200,000 x .20). 

You might also choose to sell your home before that 30-year term is up. If that's the case, you'd pay the home equity sharing company back out of your sale proceeds.