Home Equity Investment: Point-By-Point Guide To Success

Point's Home Equity Investment (HEI) is a partnership between you and Point, where you, as the homeowner, receive a lump sum upfront from Point in exchange for a slice of your home's future value. Unlike traditional home equity loans, there are no monthly payments, and you can buy back your equity at any time within a 30-year term without penalty. Point's HEI has no income requirements, and you only need a credit score of 500 or above to qualify. This product is best suited for those seeking financial flexibility and freedom, especially if they have poor credit or high-interest debt.

Home equity investment vs. home equity loan

Home equity investment (HEI) is an alternative to a home equity line of credit (HELOC) or a home equity loan. With an HEI, homeowners receive a lump sum upfront in exchange for a portion of their home's future value. Repayment is due all at once, either at the end of a term or when the property is sold.

HELOCs and home equity loans, on the other hand, turn your equity into a credit line or lump sum payment, requiring regular monthly payments and interest charges.

• Repayment structure: HEI has no monthly payments, while home equity loans and HELOCs require regular monthly payments. With an HEI, you repay the investment in one lump sum at the end of the term or when you sell your home.
• Credit score and income requirements: HEI has more flexible credit score and income requirements. Home equity loans and HELOCs typically require a higher credit score and proof of income.
• Effect on debt-to-income ratio: HEI does not affect your debt-to-income ratio, while taking out a HELOC or home equity loan will.
• Share in home appreciation/depreciation: With an HEI, the company invests in your home's future appreciation or depreciation. In contrast, home equity loans and HELOCs are purely loans without any sharing of home value changes.
• Early repayment penalties: HEI offers flexibility in early repayment without penalties. Home equity loans and HELOCs may have prepayment penalties.
• Availability and property type: HEI is currently only available in a limited number of states and property types, while home equity loans and HELOCs are more widely available and applicable to a broader range of properties.
• Fees and costs: HEI may have higher fees and costs, including origination fees, risk adjustment fees, and third-party fees such as appraisal and escrow. Home equity loans and HELOCs also have closing costs and possible origination fees, but the overall fees may be lower compared to HEI.
• Control and ownership: With an HEI, you retain full ownership and control of your home. Home equity loans and HELOCs may have more restrictions and requirements from the lender.

In summary, HEI offers a more flexible and less burdensome way to leverage your home equity, especially if you have poor credit, a high debt-to-income ratio, or need a longer repayment term. However, the cost of borrowing could be much higher with an HEI due to the shared appreciation model and potentially higher fees. Home equity loans and HELOCs provide more traditional and widely available options but require regular monthly payments and may have stricter requirements.

Pros and cons of home equity investment

Home Equity Investment (HEI) is an alternative to traditional home equity solutions, allowing homeowners to tap into their home equity nest egg and maximise their financial flexibility. Unlike conventional loans, HEI offers no monthly payments, no need for perfect credit, and no income requirements. However, there are some pros and cons to consider before making a decision.

Pros of Home Equity Investment

• Less stringent requirements: A credit score above 500 may be enough to qualify for HEI, even if you don't meet the requirements for home equity lines of credit (HELOCs) or home equity loans.
• No monthly payments: With HEI, you don't have to worry about monthly payments. You owe nothing until your term is over, or you decide to sell your home or repay early, maximising your monthly cash flow.
• Access to a large lump sum of cash: Depending on your home value and equity, you can get up to $500,000 with HEI.
• No restrictions on the use of funds: You can use the proceeds from HEI for anything you need, such as paying off high-interest debt, renovating your home, or covering educational expenses.
• Flexible term lengths: Different HEI companies offer different term lengths, usually 10 or 30 years. A 30-year term gives you the flexibility to pay nothing for up to 30 years, and there are no prepayment penalties if you choose to repay early.
• Second properties may be eligible: Depending on the HEI company, you may be able to get an investment on a rental property or second home, although with stricter qualification requirements.

Cons of Home Equity Investment

• Sharing future appreciation: When you take out an HEI, you agree to share the future appreciation of your home with an investment company. This means giving up part of the proceeds when you sell your home or take out a cash-out refinance.
• Longer application timeline: HEI is tied to a thorough investigation of your home's value and title, resulting in a longer funding process compared to unsecured financial products.
• Limited availability: HEI is a newer product and is not yet available nationwide. It is also not available for certain property types, such as manufactured homes or farms on large acreage.
• Risk of foreclosure: Like any product secured by your home, failing to repay your HEI may result in the risk of foreclosure.
• Unpredictable repayment amount: Unlike a loan, you won't know exactly how much you owe until it's time to repay, as the cost is tied to the value of your home, which can fluctuate. Some companies, like Point, offer protections to prevent you from repaying too much if your home appreciates significantly.
• Risk adjustment: Some HEI companies, including Point, apply a risk adjustment to the initial appraised value of your home, which can reduce the amount you receive upfront and impact how much you'll have to repay.

How to get a home equity investment

Home equity investment is a strategy for turning your home equity into cash. Home Equity Investment (HEI) is an alternative to traditional home equity solutions, allowing you to tap into your home equity nest egg without increasing your debt load.

Step 1: Check your eligibility

Before applying, ensure you meet the eligibility criteria. Typically, you should have at least 35% equity in your property, but it can be as low as 20%. Additionally, check the investor's geographic eligibility to ensure they operate in your state.

Step 2: Pre-qualification and offer review

Start by pre-qualifying on the investor's website. You will need to provide basic information, such as your home address, and estimate your home's value. After submitting the requested information, you will receive an initial offer, which you should carefully review.

Step 3: Complete the application and submit documents

If you decide to proceed, complete the full application and submit the required documents. This may include mortgage statements, proof of ownership, and other financial information.

Step 4: Home appraisal

The investor will schedule an independent, third-party home appraisal to assess your home's current market value. This step is crucial in determining the final investment amount and terms.

Step 5: Funding

Upon a successful appraisal and review, the investor will issue the home equity investment. The funding process can take several weeks, depending on your responsiveness, the complexity of your application, and other factors.

Step 6: Repayment

With a home equity investment, there are typically no monthly payments. Instead, you will repay the investor in a lump sum, usually within 10 to 30 years. You can choose to repay through a home sale, cash-out refinance, or another source of funds.

It is important to carefully review the terms and conditions of the investment, as there may be fees and other costs associated with the process. Additionally, consider seeking independent financial advice to ensure that a home equity investment aligns with your financial goals and circumstances.

Home equity investment for investment properties

Home equity investment is a way to access the cash value of your home without taking on a loan and the associated monthly payments. Point, a California-based company, offers a non-traditional way to access your home's value through its home equity investment model. Unlike traditional home equity loans or lines of credit, Point acts as an investor in your property, and there are no monthly payments. This makes it a good option for investment properties.

Here's how it works: Point offers you a lump sum of cash in exchange for a share of your home's future value. There are no monthly payments, and you can choose to repay your investment at any time before the end of the 30-year term. If your home appreciates, you will pay Point back the lump sum, plus a certain percentage of the home's current value. On the other hand, if your home drops in value, Point will share in the loss with you.

One unique aspect of Point is that it invests in rental properties, which is something that most home equity sharing companies do not do. However, you will have to pay a "Rental Premium" if you decide to take out an investment on a rental property. According to Point, this premium is typically 10% of its typical appreciation share. So, for example, if Point would receive a 30% share of the appreciation of an owner-occupied home, it would receive a 33% share of the growth of the same property if it is occupied by a renter.

There are some fees associated with Point, including a 3-5% transaction fee and a home appraisal fee, which typically costs between $500 and $820. Additionally, when it comes time to settle your investment, Point will charge a $45 Reconveyance Service Fee and a $30 Payoff Demand Statement.

It's important to note that there are risks associated with home equity investments. If you are unable to repay your investment, you could lose your home to foreclosure. Additionally, the real estate market can be unpredictable, and there is a chance that your home's value could decrease, leaving you "underwater" on your loan.

Overall, home equity investment through Point can be a good option for investment properties, providing flexible financing without the burden of monthly payments. However, it's crucial to carefully consider the risks and fees associated with this type of financing.

Repaying a home equity investment

The amount you repay is based on the initial investment plus a percentage of your home's appreciation in value. This means that if your home has increased in value, you will pay back more than the original investment. However, if your home has decreased in value, you may pay back less.

Let's say you received a home equity investment of $50,000, which was 10% of your home's initial value of $500,000. Over the term of the investment, your home's value increased by 2% each year. If you choose to repay the investment after 5 years, you would calculate the repayment amount as follows:

• Original investment: $50,000
• New home value: $550,000 (10% increase over 5 years)
• Repayment amount: $50,000 + 10% of $550,000 = $105,000

So, in this case, you would repay a total of $105,000.

It's important to note that different companies may have different methods for calculating the repayment amount, and there may be additional fees involved. Be sure to carefully review the terms and conditions of your home equity investment agreement to understand your specific repayment obligations.

Frequently asked questions