Homeowners have seen their equity increase dramatically in recent months due to a rapid rise in property values. In fact, CoreLogic, a data and analytics company focused on analyzing housing data, found that U.S. homeowners with mortgages have seen their equity increase by $1.9 trillion between the start of the coronavirus pandemic and the first quarter of 2021.
Homeowners who are house rich and cash poor can benefit from this increased equity, but only if they are able to find the right solutions to tap into it.
Many property owners turn to a home equity line of credit or a home equity loan, which are two popular ways of borrowing against home equity. But there are other solutions as well — including some for homeowners who aren't interested in getting a loan or in making monthly payments.
Hometap provides a different way to access your equity that doesn't require you to make ongoing payments. Instead, the company makes an investment in your home. While you retain ownership, both you and Hometap stand to benefit from your home’s future value — and also share the risk of that value falling.
This Hometap review will explain how this innovative loan alternative works so you can decide whether it’s a smart fit for you.
Hometap offers a new way to access your home's equity, without taking out a loan.
- No loans or monthly payments to deal with
- Use the money to pay off debt or fund renovations
- Get a free home estimate
What is Hometap?
Hometap was founded in 2017 by Charlie Vrettos, Andrew Vassallo, Jeffrey Glass, and Max Campion. The company's goal was to help the average American benefit from their most valuable physical asset: their home. It does this by allowing homeowners a different, easier way to access the equity in their homes instead of borrowing against it.
Unlike with lenders, the company doesn't give you a loan against the equity of your home that you have to pay back. Instead, it makes a home equity investment, so it benefits from rising house values along with you. You retain ownership of your home, get money, and have a 10-year term to pay back the Hometap investment by buying it out.
HomeTap is headquartered in Boston, Massachusetts, but helps homeowners in 14 states. It's been named as the Best Real Estate Startup in Boston by investment website Benzinga, and has raised more than $100 million from investors who believe in its innovative business model.
How does Hometap Work?
|Equity amount available||Up to $400,000 (or 30% of home’s value)|
|Fees||3% of the investment amount
Appraisal fees: $599 in most states; $800 in Oregon
Title charges: $700 to $800
Government recording and transfer charges: $370 to $1,000
|Max loan-to-value ratio (LTV)||70%|
|Credit score needed||600 (Minimum 500 FICO score)|
Hometap offers an equity investment, rather than a home equity loan or line of credit. You start the process by requesting an estimate of how much Hometap would be willing to invest in your property. Hometap will make a preliminary offer, then conduct a third-party home appraisal to see what your home is worth and how much money it’s willing to provide.
If you accept the investment offer, you'll close on your transaction and receive wired funds within a few days. HomeTap charges a 3% fee for its services. There are also upfront costs including an appraisal fee and transfer taxes. This is taken out of the investment money you receive so you don't have any out-of-pocket costs in most cases.
You are allowed to use the money for anything you'd like. Unlike a traditional loan, you won't pay interest on this money because you aren't borrowing it; it's an investment on Hometap's part. However, once you sign the papers and get your money, Hometap will have an ownership interest in your property and you'll eventually have to buy out its portion.
Aside from the upfront fees, Hometap makes money by receiving a Hometap Share, which entitles the company to a percentage of what your house is worth at the time of settlement. With this payment structure, it shares the risk of rising and falling property values. If home prices rise, the payment is higher and if they fall, it's lower. The good news: there's a 20% appreciation cap, which means if your home goes up more than 20% in value, Hometap won't share in any additional gains you make beyond that point.
You'll still be in control of your property and be able to live in it after Hometap invests, but you will have to meet certain requirements such as maintaining the property and continuing to pay your regular mortgage. You will have 10 years to settle with Hometap by buying out its investment.
You can repay Hometap when you sell your house, out of your savings, or use loan proceeds if you refinance your mortgage. If you don't sell, and therefore don’t know the market value of your home, Hometap will do an appraisal at the time of settlement to see what your house is worth and determine its share.
Who can use Hometap?
Hometap is available only to borrowers who meet certain criteria:
- You must have a single family home or condo
- You must be located in a state where Hometap operates
- Your FICO score must be at least 500 and your credit score must be above 600
- You must have at least 25% equity in your home
- The amount you’re looking for is less than 30% of your home’s value or less than $400,000
Hometap is available in Arizona, California, Florida, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Virginia, and Washington. The company has indicated it is adding more states.
The company will invest in homes in active flood zones, but only if homeowners maintain flood insurance during the entire time Hometap's investment is active. Your flood policy must be in place before the investment can proceed.
You must also be ready to settle the amount you receive within the 10-year investment term. So if you were looking for a longer-term loan, Hometap isn't right for you.
Hometap vs. home equity loans
If you’re wondering how to get a loan, be aware that Hometap is very different from a home equity loan.
When you take out a home equity loan, you borrow from a financial institution and your house serves as collateral. The lender doesn't invest in your home; the home guarantees the loan. You pay interest on a home equity loan, which is how the lender makes money.
With a home equity loan, you're required to make monthly payments and you'll know the terms and total costs up front. It doesn't matter if your home's value goes up or down after you get a home equity loan, your payments to the lender remain the same.
Hometap isn't a loan. You don't pay interest, and you don't have to make monthly payments. Instead, the company invests in your home. The amount of money it makes from the investment depends on whether your property’s value rises or falls. If property values go up, Hometap’s share equals a larger amount of money because it benefits from the appreciation.
You have 10 years to buy out the investment, but you have the option to do so sooner.
If Hometap doesn’t seem right to you and you want to learn more about traditional loan products that can give you access to your home’s equity, look into HELOCs vs. home equity loans.
Pros and cons of Hometap
There are some significant benefits to using Hometap. In fact, the company made FinanceBuzz's list of the best home improvement loans, but there are also some important things to be aware of:
- Hometap shares the risk of falling property values. If your property doesn't go up in value, the company gets paid back less.
- The appreciation cap ensures you get to keep most of the profits if your home’s value increases sharply.
- You won't owe interest on the money Hometap provides.
- You can access the equity in your home without having to make a monthly payment.
- You can receive your money quickly. Typically, the entire process takes as few as three weeks after you complete an application,
- You have flexibility in when and how you pay back Hometap and can get the money to buy out the investment by selling, refinancing with a new home loan, or paying from savings.
- You could end up having to do a forced sale of your house to pay back the investment if you don't have another option at the end of 10 years.
- You have to give up some of the gains on your home, and working with Hometap could end up costing more than a traditional loan if your home’s value increases sharply.
- You have to pay a 3% upfront fee, plus other closing fees that can add up to several thousand dollars.
FAQs about Hometap
Is Hometap legit?
Hometap is a legitimate company. It was founded in 2017 and has received more than $100 million from investors. It is accredited by the Better Business Bureau and has an A+ BBB rating.
Is Hometap a reverse mortgage?
Hometap is not a reverse mortgage. It is a company that allows you to tap into home equity without borrowing. The company makes an investment in your home and is paid a percentage of your home's appreciation after 10 years or whenever you decide to settle or buy out the investment prior to that time.
Can you negotiate with Hometap?
Hometap's valuation of your home is based on a third-party appraisal and you can't negotiate.
How to apply with Hometap
Before you begin the application process, first make sure you are located in a state where the company operates. To apply with Hometap, visit Hometap.com, input your zip code, and click Get an Estimate.
You will need to be prepared to provide:
- Your full street address, including the city, state, and zip code
- The state where the property is located
- The type of property
- What you are currently using the property for (primary residence, vacation home, or rental)
If your property is eligible, you'll also need to provide:
- Your first and last name
- Your email address
- Your phone number
- Information on how you are likely to use a Hometap investment
- Your ideal time frame for receiving the money
You'll receive an immediate investment estimate if Hometap has enough information to provide one. You'll also be connected with a dedicated Hometap Investment Manager who will work with you throughout the entire process.
From start to finish, the process will take about three weeks from the application time until you receive your wired funds.
Other financial products to consider
If Hometap isn't the right approach for you and your personal finance situation, you have other options for getting the cash you need out of your home’s value.
You could consider a home equity loan, which allows you to borrow against your home in a more traditional way. This is a loan guaranteed by the value of your home, which provides you with a set amount of money. You pay back this loan over time.
You could also explore home equity lines of credit, which allow you access to a line of credit guaranteed by the equity in your home. You can draw from the line of credit as needed. To learn more, check out our list of the best mortgage lenders.