A shared equity agreement, also known as a home equity sharing or equity finance agreement, allows homeowners to access their home equity in cash by partnering with an investor. In exchange for a lump sum, the investor receives a share of the home's future appreciation.
These agreements can be a beneficial option for those with poor credit, temporary financial challenges, or substantial equity but who can’t qualify for traditional home-secured loans. Homeowners can use the funds for various purposes, including:
- Renovations
- Debt elimination
- Retirement planning
- Investment diversification
- Starting a business
Shared equity agreements differ from conventional mortgages and home equity loans because, like reverse mortgages, they don’t require monthly payments. Instead, at the end of the agreement, the homeowner repays the investor the original amount plus a percentage of the home’s change in value. The amount owed can vary depending on whether the property value increases, decreases, or remains stable, with the final payment potentially being significantly higher than the initial loan.
Additional terms in these agreements may include:
- The homeowner contributing a proportional share of the mortgage and expenses
- The investor receiving a portion of the profits if the home is sold
- The homeowner making a monthly rental payment beyond shared expenses
