What Is A Home Equity Agreement?

Jan 29, 2025

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Real estate owners often ask: What is a home equity agreement?

In simple terms, it’s a contract that provides homeowners with money from a third-party investor in exchange for future appreciation and a share of their home equity. In other words, the contract specifies that an investor will pay you a lump sum of cash as an incentive for selling a portion of the equity that you hold in your home. That said, keep in mind that you’ll eventually have to repay the funds within a predetermined time period that’s been mutually agreed upon, or at such time when your home is sold.

Put simply, the home equity agreement effectively allows you to use equity that you hold in your house and a potential future increase in the value of your property as a form of leverage through which to secure additional funds. Sums secured this way can be utilized for making purchases, paying down debt, financing upgrades and remodels, or a host of other purposes. Benefits for homeowners include immediate access to one’s equity in the home and no monthly payments. But again, fees apply to such contractual arrangements, and repayment terms come with time restrictions attached.

In any event, despite the caveats attached to such a contract, it could be a good option for you. Let’s take a closer look at pros, cons and the definition of a home equity agreement in practice to get a sense of how you might benefit from one.

What Does A Home Equity Agreement Mean?

A home equity agreement or HEA (occasionally referred to as a home equity sharing agreement or home equity investment) is a contractual arrangement made between a property owner and an investor or investment firm. Under its terms, the homeowner is able to access a certain portion of the property’s value at the time of the contract’s execution. As opposed to alternate financing vehicles such as home equity lines of credit (HELOCs) or home equity loans, sums that you gain access to through the deal are not subject to monthly interest payments.

At the same time, by signing such a contract, you’ll grant an investor a lien on your home in exchange for a lump sum of money that the financier offers in exchange for a certain fraction of your property’s appreciated value. Any monies provided under such a setup need to be repaid upon the sale of the house, or within a certain predetermined and mutually agreed time period, typically 10 – 30 years. As part of the contract, you’ll also be required to properly maintain and upkeep the property, and pay property taxes, homeowners insurance and closing costs or fees associated with the home sale.

As you might imagine, home equity agreements are only becoming more popular as the prices of real estate properties and goods continue to rise, as does the need for access to liquid capital. The deal structure provides potential benefits for both parties and can help put cash in your hands faster.

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