Hometap review: 10-year home equity investments for cash-poor homeowners
Moneywise.com / Moneywise.com
Updated: March 20, 2024
Are you thinking about taking a home equity loan or home equity line of credit to pay for renovations and repairs or put toward your kid's college fund (or your loans)?
Borrowing is just one way to leverage the equity in your home for cash. Another option is a home equity investment. Though this alternative carries its own set of risks, it may also offer advantages for homeowners who need cash fast and don't want to owe monthly payments. Hometap is just one company that will invest in your home's equity.
Find out if Hometap is right for you here in this complete Hometap review.
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Hometap is a home equity sharing company that invests in homes by offering cash payouts in exchange for a portion of a home's future value. Home equity investments are an alternative to traditional borrowing methods such as HELOCs and home equity loans.
Hometap pros and cons
Pros
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Cash upfront: Receive your Hometap investment within a matter of weeks after applying.
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No restrictions on use: There are no rules or requirements for using your Hometap investment. Just that you pay Hometap what you owe before the 10-year period is up.
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No home inspections: All Hometap is interested in is your home's value when you sell or settle. They won't be checking on your house throughout the effective period or weighing in on any renovation decisions you make.
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Low minimum credit score: Hometap requires you to have a credit score of at least 500 to qualify, which is considered very poor. No hard credit check is required.
Cons
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Risky: You won't know exactly what you'll owe Hometap at the end of the settlement period because it depends on your house's future value.
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Potential for forced sale: You may need to sell your home to make your Hometap equity payment even if you don't want to or change your mind.
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Limited operations: At this time, Hometap is only making home equity investments in seven U.S. states. This leaves the rest of U.S.-based homeowners in the dust.
What is Hometap?
Hometap is a Boston-based fintech company that was founded in 2017 with the goal of making homeownership more accessible and less stressful.
The company offers a unique financial service that allows homeowners to tap into their home equity without taking out a loan or making monthly payments.
Instead, Hometap invests in the home by providing cash upfront in exchange for a share of the future value of the home.
This model provides homeowners with a flexible option to access their home equity for various purposes, such as renovations, debt repayment, or funding education, without the burden of debt.
Who are Hometap's equity partners?
Hometap partners with a broad range of institutional investors, family offices, and insurance companies to fund its home equity investments.
Among the notable partners are Bain Capital and American Family Ventures. These partnerships enable Hometap to offer homeowners access to their home equity without the need for loans, allowing them to convert part of their home equity into cash without monthly payments or interest charges
Who is Hometap for?
House-rich, cash-poor homeowners
If you need cash, you can lean on your home's value and the equity you already have in it. Hometap doesn't approve all applications for investments, but if you have enough equity and your home's value is expected to go up, you probably have a pretty good chance.
Hometap requires you to have at least 25% equity to qualify.
People who want cash now
With Hometap, you can receive an investment of up to 30% of your home's value or $600,000 upfront in as little as three weeks after applying.
This isn't “debt-free cash” exactly, but you won't owe interest or monthly payments and can pay Hometap out of your earnings if/when you sell.
People who don't want monthly repayments
A traditional home equity loan requires you to make monthly payments toward what you owe and charges an interest rate on top of that.
But since it's an investment, you won't make monthly payments or pay interest to Hometap, making this an attractive option for people who are planning to sell their homes in the future but can't afford to add another payment to their budget right now.
Who is Hometap not ideal for?
New homeowners
If you've just purchased your house, you probably won't be able to qualify for a home equity investment with Hometap unless you've built equity in your home quickly and have at least 25%.
People who aren't sure about selling
If you're not 100% certain you want to sell your home in the somewhat near future, Hometap probably isn't for you. Because to come up with the money, you might just end up taking out a loan anyway. In this case, consider borrowing options such as a home equity loan.
People in 43 U.S. states
As of April 2023, Hometap is only operating in seven states. These are:
- Massachusetts
- Michigan
- Minnesota
- Nevada
- Ohio
- South Carolina
- Utah
If you don't see your state on this list, Hometap won't be available to you yet.
How does Hometap work?
Hometap is not a lender but a home equity-sharing company or investor operating under the LLC Hometap Equity Partners. You tap into your equity for an immediate cash payout in exchange for a portion of that equity later on. The effective period is 10 years.
If you qualify for an investment, you will enter into a home equity sharing agreement. Hometap will pay you a lump sum upfront and you will pay an agreed-upon percentage, calculated using your home value, within or at the end of the ten-year effective period.
This is important: Hometap is entitled to a percentage of your home's equity whether you sell your house or not.
To qualify for an investment, Hometap requires that you have at least 25% equity in your home. They will make an investment of up to 30% of your home's value (or a maximum of $600,000). Hometap invests in single-family houses and works with FICO scores above 500.
When you boil it down, there are three main steps to the process of getting a home equity investment from Hometap.
- 1.
Apply: See if you qualify by taking the Fit Quiz and getting an investment estimate.
- 2.
Finalize: Get your house appraised, sign the legal papers, and accept a final investment.
- 3.
Settle: Repay Hometap when you sell your home or settle the investment early before the 10-year effective period ends.
Here's a deeper dive.
Apply for an investment
Inquiry
To apply for an investment, you'll submit an Investment Inquiry through the site that asks basic questions about your house and your goals for the investment. This is called the Fit Quiz and it's just a preliminary application. We'll cover this in more detail next in the “Who Qualifies To Use Hometap?” section.
Investment estimate
If Hometap decides your house might be worth investing in, they'll send an Investment Estimate. This might differ from the final offer but should give you a ballpark idea of where you might land.
This is also when you'll be connected with a Hometap Investment Manager, a dedicated specialist who will walk you through applying and answer your questions.
Application
Next, you'll submit your complete application. At this stage, you'll provide the requested documents from your home purchase and loan to Hometap and upload them to your account.
Investment offer
Finally, Hometap will give you finalized Investment Details with your final investment offer. This is when you find out how much cash Hometap is actually willing to invest in your home.
Hometap's investment is calculated as a percentage of your home's value when you apply, and the amount you owe at the end of the effective period is calculated using the same percentage. So if you're following along, that means you could wind up paying Hometap more or even less than they paid you. This is a risk you — and Hometap — take. At this stage, Hometap will also send for a third-party appraisal.
Hometap will make a maximum investment of 30% or $600,000 (minimum of $15,000) but the amount they will pay for home equity depends on the value of your home and the market. You won't know what you're going to pay to Hometap until you're ready to settle the investment.
The entire process, from applying for an investment to receiving your cash disbursement, can take as little as three weeks if everything goes smoothly. You won't make a monthly payment or pay interest when you get a Hometap investment.
Hometap will set up a third-party appraisal once when considering your application and again when you decide to sell. There won't be any follow-up inspections to see what you've done with the house and Hometap won't ask you to do anything other than stay on top of your payments and maintain your home.
You'll let Hometap know if you're ready to sell or want to buy out the investment.
Renovation adjustments
If you plan to make significant updates or improvements to your home and you expect these to affect its value, you should request a Renovation Adjustment from Hometap.
Renovation Adjustments can be made for certain updates that cost more than $25,000 in total. This allows homeowners to have their home value adjusted down to account for renovations and exclude these from their home's final value.
Hometap does not necessarily get a share of appreciation that takes place as a direct result of renovations. If you provide the necessary documentation to prove what you did and what it cost, you can get the percentage adjusted. But Renovation Adjustments are not guaranteed.
To request a Renovation Adjustment, you'll need receipts and pictures from any renovations you do and you'll need to provide these to Hometap within 90 days of completion.
Can you borrow more after the initial investment?
If you need more money after finalizing your application and receiving your funds, you might be able to make that happen with an Investment Increase. But just because Hometap made an equity investment the first time around doesn't mean they will invest more.
They assess eligibility for Investment Increases on a case-by-case basis. Talk to your Investment Manager if you want to think about handing over more of your equity for cash.
Settling the investment
You have 10 years after accepting your final offer from Hometap to settle the investment.
If you sell your house within this timeframe, you can just give Hometap what you owe from the proceeds of the sale so you have no out-of-pocket costs. But if you want out of the agreement sooner and you don't want to sell, you'll have the buy out the investment. Hometap doesn't care how, just that you pay the amount equal to the home equity agreed upon.
Hometap makes money only when your home's value increases, so they're banking on this happening by the time you're ready to sell or settle. If your home decreases in value, you will still just owe Hometap the agreed-upon percentage, even if this is less than the cash you received upfront. But if your home's sale price is higher than what you paid or even what you expect, Hometap's share will be higher and they'll profit.
Here's a sample of what this could look like for a home estimated to be worth $275,000.
This example scenario was generated using Hometap's Home Equity Investment Calculator. You can use this to see how much home equity you might be able to access.
If you settle without selling your home, you'll pay a percentage based on your home's market value at the time of settlement. So if you decide to settle the investment three years after applying, Hometap will find out what your home's value is at that point with a third-party home appraisal.
Do you need to tell Hometap how you use the money?
No. Hometap won't helicopter over you to make sure you're growing their investment. There will be no random check-ins or appraisals.
As far as your obligations before settling the investment, you're just expected to stay on top of your mortgage payments and continue making all other insurance and tax payments you've been making as a homeowner.
You do not need to get Hometap's input on changes you want to make to your home or do anything to try to increase its value if you don't want to.
Who qualifies to use Hometap?
It's not in Hometap's best interest to just invest in any old home, so they're particular about which houses and homeowners they invest in. Here's more information on eligibility and the qualification process.
Fit quiz
Before doing anything, you have to take a quiz to find out if you pre-qualify. This is called the Fit Quiz.
First, Hometap will ask if you own a home and where. This will immediately rule you out if you're in one of the 43 states Hometap hasn't yet expanded to. But if your state doesn't qualify and you're really interested, you can sign up to receive a notification if Hometap makes it to your neck of the woods.
The next question asks you about how you would use the Hometap investment. You're under no obligation to go through with any of the uses you indicate here — this is just preliminary.
Next, you'll indicate your ideal Hometap Investment amount by choosing a range between $15,000 and $600,000 and how long you plan to live in this home. The question is “Is this your forever home?” and the options are:
- Yes, I don't plan to move
- No, I plan to sell in 6-10 years
- No, I plan to sell in 1-5 years
- I don't know
Then the quiz asks you if you're considering other options like home equity loans, HELOCs, reverse mortgages, refinances, personal loans, etc.
Finally, you'll provide some contact information, including your name, email address, and phone number. You need to do this to get to the next step, which is obtaining your results.
If you're approved, you'll be connected with a dedicated Investment Manager who will work with you to finalize your application.
Both homes and rental properties can qualify for investments.
Participating states
Hometap is still expanding its market. At the time of writing this, it only invests in seven U.S. states. These are:
- Massachusetts
- Michigan
- Minnesota
- Nevada
- Ohio
- South Carolina
- Utah
Credit score requirements
Hometap will consider your application if you have a credit score of at least 500, assuming everything else in your application looks good. But most clients have scores of 600 or more.
While traditional home equity loans will assess your interest rate using your credit and borrowing history, Hometap doesn't even do a hard credit check.
Find out more: Best credit score sites: How to effectively monitor your credit score
Benefits of Hometap
No monthly payments or interest
Unlike a home equity loan or home equity line of credit, you won't make monthly payments or pay an interest rate. You just pay Hometap at the end of the effective period — or 10 years after taking the investment — or settle early.
Easy application process
Seeing if you qualify for a Hometap Investment is fast and easy. Hometap only wants to see that your credit score is at least 500 and doesn't use your credit otherwise. They also won't pay attention to your debt-to-income ratio as this isn't a lending situation. Hometap is most interested in your home and its value, less in you.
And then won't leave you hanging when you apply — you'll know if you might qualify almost immediately. Plus, everything from the Fit Quiz to signing your final offer can be done online.
Dedicated specialist
You'll be paired with a Hometap Investment Manager if approved who will be able to answer any questions you have about the process and guide you through setup. This is especially convenient if you want to make changes to an active investment such as increasing the amount or adjusting for renovations.
No home inspections
Hometap doesn't have any say in how you use their investment and doesn't play a role in the home sale process if you decide to move. All they require if you sell is that you try to get a fair market value for your home because that's what will be used to calculate the payout percentage.
Drawbacks to Hometap
No set repayment
Because the investment is based on a percentage of your home's future value, there's no telling exactly what you'll owe Hometap at the end of the investment period (whether you settle after selling or settle early).
You could end up paying Hometap a lot more than they paid you if the value of your home goes up, and this would come out of your profit. If you're counting on a big gain from the sale, it may be slashed after you pay Hometap.
But perhaps the scariest outcome is if you don't sell and your home's value increases substantially. At this point, you're not paying Hometap from what would otherwise be a profit, you're paying from your savings, a loan, a second mortgage, or whatever else.
Find out more: How much does it cost to sell a home?
No flexibility
If you change your mind about selling your house after applying for Hometap, you don't have any options other than settling the investment. This is by whatever means necessary, even if that's a forced sale, taking out a second mortgage, or applying for a hefty personal loan.
Going the home equity investment route because you're cash poor only makes sense if you have a plan in place to change that.
Riskier than a traditional home equity loan
With a Hometap investment, the expectation is generally that you're going to sell your home. If you don't, you still have to come up with the money to pay what you owe, even if this is more than the amount you received as a cash investment. For a lot of people, it will be, since Hometap only invests in homes it expects to appreciate.
TL;DR: If you chose Hometap to avoid taking out a loan, there's a chance you still have to.
Hometap's pricing and fees
Hometap doesn't charge interest and makes most of its money when you're home value increases and you pay them a portion of what you make on the sale.
That said, Hometap does charge a few fees. The biggest one is a fee equal to 3% of your investment for funding and arranging the transaction. This, along with the fees for appraisal, is deducted from your investment.
How to contact Hometap
Before working with Hometap, you can live chat with a representative through the site. The chat will start with a bot, but you can request to be connected with an Investment Manager even if you haven't started working with Hometap yet.
You can also email or schedule a call with a representative from Hometap through the Contact Us page of the site. For questions about pre-qualifying or applying, email hello@hometap.com. For questions about active investments, email homeowners@hometap.com.
As a client, you can reach out to your Investment Manager at any time, whether you have a question about your investment, you want to increase your investment amount, you want to know more about settling early, or something else.
Hometap competitors
There aren't many companies doing exactly what Hometap is doing, but there are a handful of other home equity-sharing companies. Some of these are Point, Unison, and Unlock. We'll compare some similarities and differences between these options here.
Point
Like Hometap, Point lets you access the equity you have in your home with a home equity investment. They also have low credit requirements and don't require monthly payments, but Point differs from Hometap in that its terms are 30 years and homeowners can qualify with equity of 20% or more (versus 25%). Another difference is that you can rent out your home.
Point also offers SEED Down Payment Investments for those with good credit and operates in 25 states plus D.C. compared to Hometap's seven. Point will only invest up to $500,000 and charges a processing fee of 3%.
Unlock
Unlock is another Hometap competitor but with the lowest maximum investment at $300,000 (with a minimum of $30,000). For this company, the effective period is also ten years for most people. But the most important difference is that rather than completely buying out an investment all at once by selling or settling as you would with Hometap, you can do a partial buyout with Unlock to pay a little at a time. You can do this multiple times.
Unlock charges a 3.9% origination fee and may require you to repay some of your debt with the money they pay you. Overall, they're a little more restrictive but that partial buyout option is unique. Unlock operates in 15 states and does allow for rental property investments.
Unison
Unison is similar to Hometap in some ways but differs in the specifics. With this company, you will have up to 30 years to settle the investment and can use the money however you want. But the maximum investment is $500,000 or up to 17.5% of the value of your home and the minimum is $30,000. Unison will reduce the appraised value of your home by 5.0% as a Risk Adjustment and may make a Deferred Maintenance Adjustment if you neglect to carry out necessary upkeep and this affects your home's value.
Unison investments are not intended for rental properties. Unison is available in 29 states and D.C., making it the largest option available.
Hometap alternatives
Hometap vs. Credible
To provide a comprehensive comparison between Hometap and a traditional mortgage refinancing option (like those offered through platforms such as Credible), we need to consider several key aspects of each financial solution. Below is a table that outlines the primary differences between using Hometap for accessing home equity and going through a mortgage refinance process, typically represented by platforms that aggregate offers from various lenders, such as Credible.
| Feature | Hometap | Credible (Mortgage refinancing) |
|---|---|---|
| Product | Home equity investment, not a loan. | Loan product that replaces your existing mortgage with a new one. |
| Payments | No monthly payments. | Monthly payments required, based on the new loan terms. |
| Interest | No interest charges; instead, shares future home value appreciation. | Interest charges apply based on the new loan's rate. |
| Debt | Does not add debt; it's an investment in the property. | Increases debt or alters existing debt structure. |
| Application process | Involves home valuation and investment agreement. | Involves credit check, home appraisal, and loan underwriting. |
| Funding Speed | Can be relatively quick, depending on valuation and agreement. | Can take several weeks to months, depending on lender and circumstances. |
| Costs | May include an investment fee and share of home's appreciation. | Involves closing costs, potentially higher interest costs over time. |
| Repayment | Repayment through sale of home or buyout by homeowner within the term. | Regular loan repayments over the life of the loan. |
| Flexibility | Fixed term (often 10 years), after which investment must be settled. | Varies by loan, can include options like 15, 20, 30-year terms. |
| Suitability | Suitable for accessing equity without increasing debt. | Suitable for restructuring debt, lowering interest rates, or cash-out. |
| Get started | Get Hometap | Apply with Credible |
This table simplifies some aspects of both options and does not cover all scenarios or specific features of individual products. Both Hometap and mortgage refinancing through a platform like Credible can be beneficial, depending on your financial situation, goals, and preferences. Please carefully consider your needs, consult with financial advisors, and thoroughly research and compare specific products and terms before making a decision.
Hometap vs. Rocket Refi
When comparing Hometap to Rocket Mortgage's refinancing options (often referred to as "Rocket Refi"), it's important to understand that these are two distinct approaches to accessing home equity or improving mortgage terms. Below is a table that outlines the primary differences:
This comparison is a general overview and might not capture all the nuances of each option. Hometap provides a unique way to access home equity without monthly payments or accruing debt, while Rocket Refi offers traditional mortgage refinancing options, including rate-and-term refinancing and cash-out refinancing. The choice between these options should be based on individual financial situations, goals, and preferences. Homeowners are encouraged to conduct thorough research and possibly consult with financial advisors to understand which option best suits their needs.
Is Hometap the same as a reverse mortgage?
Hometap investments are not the same as reverse mortgages, though there are some similarities between the two. With a reverse mortgage, you borrow against your home's equity. The amount of the loan increases the longer you borrow, but you won't owe anything from month to month. You must use this home as your primary residence to qualify.
The biggest difference is that you're borrowing with a reverse mortgage and receiving regular payments. You won't owe money until you no longer occupy the home (and most borrowers repay the loan when they sell), and you will pay interest.
This option is exclusively for seniors over the age of 62, and you mostly see it being used by elderly customers who are planning to live out the rest of their lives in their homes.
The bottom line
Hometap lets you access the equity in your home for an almost instant payout, but it's not without disadvantages. Be aware of the risks that come with investing in your home's future value and make sure you have a backup plan for buying out the investment if you choose this. Home equity loans are safer for those not sure about selling or without enough equity.
If you're comfortable with the risks, Hometap can be a good option for cash-strapped homeowners who would rather give up some home equity than make a monthly payment. Hopefully, this Hometap review helps you decide if you're a good candidate or if you should keep exploring other options for leveraging your home equity for cash.
Read more:
- 3 benefits of buying a home when interest rates are high
- Should you pay off your mortgage or invest?
Lauren Graves is a freelance contributor for Moneywise.
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