The average American has around 70% of their net worth tied up in their primary residence. In other words, your home is most likely your most valuable asset by a wide margin.
While that makes sense (homes are undeniably important), it can cause problems. Real estate is an inherently illiquid asset. You can’t sell a piece of your home and expect to have cash in hand the next day. It can take months, even years, to find a buyer willing to pay what your home is worth.
That’s the exact problem that the home equity investment company Hometap aims to solve. In this in-depth Hometap review, we’ll take a close look at how it works and whether it’s worth considering for homeowners.
- Hometap offers homeowners cash investments in exchange for a share of future home value.
- Shares range from 5-15% and investments top out at $600,000.
- The investment is settled through a sale or buyout after a 10-year investment term.
- How Hometap Works
- Who Hometap Is For
- Hometap pros and cons for homeowners
- Hometap Alternatives and Competitors
- Can you default on a Hometap investment?
- How much control does Hometap have over your property?
- What happens with a Hometap investment if your home is destroyed?
- Can you get out of your Hometap investment early?
- Is Hometap Legit?
- In conclusion
How Hometap Works
Hometap is a home equity sharing company that offers an alternative to traditional home equity loans and home equity lines of credit (HELOCs). With Hometap, you can get upfront cash for your home without taking on any debt.
How? Let’s talk about it.
The Investment Process
Instead of offering you a loan with mandatory payment terms and guarantees, Hometap invests in your home for a share in its future value on the open market. The share (referred to as a “Hometap Share”) they ask for is usually between 5-15% and the maximum investment is $600,000.
The process is pretty simple. You start by filling in an online qualification form through Hometap’s website. If the company thinks you and your home are a good fit, they’ll arrange to get your home appraised by an approved third party.
Once the appraisal is complete, and you’re both happy with the value of your home, Hometap will send over a contract for you to sign. This contract stipulates the terms of their investment, including how much they’re willing to invest and what percentage of future value they’re entitled to. This will look something like: $30,000 for a 10% Hometap Share in a $300,000 home.
Note: Hometap also charges a service fee equal to 3% of the value of the investment.
The Repayment Process
With Hometap, you’re not taking on any debt. That said, Hometap is still entitled to cash in on their investment once the 10-year investment term is up. The amount of money owed to Hometap for their investment will depend on the value of your home at the end of the investment term and the Hometap Share percentage you agreed to.
Say that $300,000 home from earlier is worth $400,000 at the end of the term. The homeowner then owes Hometap $40,000 for their 10% Hometap Share.
You’ll have three options when it’s time to settle with Hometap:
- sell the property
- buy out the investment
- take out a loan
It’s worth highlighting that this business model means that there’s a possibility that Hometap loses money if your home decreases in value. That is a risk that they take on their end.
Who Hometap Is For
Hometap’s requirements are a bit vague. But that’s understandable—every homeowner and home is different, so applications are reviewed on a case-by-case basis.
That said, there are still a couple of minimum requirements that homeowners will need to meet in order to be considered, including:
- having a credit score above 500
- having at least 25% equity in your home
Additionally, the home in question needs to be a single-family house or a condo located in one of the following states:
- New Jersey
- New York
- North Carolina
- South Carolina
- Ohio, Oregon
If you meet these requirements, you might qualify for a Hometap investment. But like I mentioned earlier, each application is still evaluated on a case-by-case basis.
Hometap pros and cons for homeowners: The Pros
You Take on Zero Debt
Since Hometap is investing in your home and not loaning you the money, you’re not taking on any debt. This means you won’t be making monthly payments or accruing interest on top of the principle. You also don’t need to worry about making up the difference if your home decreases in value.
You Have Full Ownership
Hometap buys a share of your home’s future value, but that doesn’t mean they have a say in what you do with the property. You’re still the sole owner of your home and can make any changes, updates, and repairs as you see fit. You can even sell your property and settle with Hometap before the 10-year term is up.
Plus, Hometap doesn’t share in any home value attributed to a renovation costing more than $10,000. So, when you make expensive renovations to your home, you get all the added value for yourself.
You Get Upfront Cash
One of the benefits of working with Hometap is that you get cash upfront without taking out a loan and making monthly payments. This can be helpful for a range of reasons, including:
- unexpected expenses
- medical emergencies
- big purchases
Basically, if you have a short-term need for cash, Hometap could be a good solution.
Hometap pros and cons for homeowners: The Cons
You Might End Up Missing a Major Payday
Remember, Hometap is an investment firm. They’re not doing this out of the kindness of their hearts—they want to make money. If Hometap makes you an offer, it means they believe your home’s value has growth potential—growth potential that they want a piece of.
If you live in an area where home values are rising quickly, you might actually be better off taking out a traditional equity loan. That way, you don’t need to share any of the profit from the sale of your home when you decide to cash in.
You Might Be Forced to Sell
At the end of your investment term, you have the option to buy out Hometap’s investment with savings or by taking out a loan rather than selling your home.
If you can’t come up with enough money, you’ll be forced to sell your home to satisfy the investment terms. The worst-case scenario here would be selling your beloved family home (against your will) during a recession or bear market when home prices are down—just to satisfy the terms of your contract.
That said, it’s important to mention that Hometap has a vested interest in getting the highest possible price for your home—both in consensual sales and forced sales.
Hometap Alternatives and Competitors
Can you default on a Hometap investment?
Yes. You can default on your Hometap investment for a range of issues, including:
- failure to maintain the property
- failure to make mortgage, tax, or insurance payments
- failure to give Hometap property updates (e.g., deaths, divorces, renting, etc.)
- personal bankruptcy
Note: If you fail to make mortgage payments, Hometap can decide to help you pay them rather than forcing a sale in exchange for a bigger Hometap Share. But I wouldn’t rely on that!
How much control does Hometap have over your property?
Not a ton, but definitely some control. While they can’t dictate what you do with the property under normal circumstances, they do get power of attorney if you default (for any of the reasons listed above).
What happens with a Hometap investment if your home is destroyed?
If your home is destroyed beyond repair by a fire, earthquake, or flooding, Hometap will simply claim their Hometap Share from the insurance payout. If the home is fixable, you’re free to do so.
Can you get out of your Hometap investment early?
Yes. If you change your mind about the investment within 3 days of signing the contract, you have an automatic out. You can also buy out Hometap’s share at any time (with savings or by taking out a loan) according to the current value of your home.
Is Hometap Legit?
Hometap has an impressive 4.9/5 rating on Trustpilot from over 2,000 reviews, very few companies get such a high rating on Trustpilot. Hometap is definitely a legitimate company, it can be very helpful for the right people. You do not need to worry about being scammed by Hometap.
All told, Hometap is an interesting alternative to traditional HELs and HELOCs. Hometap might be a great solution for you if…
- …you need cash quickly and don’t want to take on debt.
- …you plan on selling your home in the next 10 years.
- …you live in an area with average property appreciation (3.5-3.8% annually).
- …you don’t have a substantial emergency fund.
- …you need help covering monthly expenses.
If any of these descriptors sound like you, Hometap is a great option to consider. You can learn more by taking their Fit Quiz and by applying for an estimate.
Just remember: Hometap isn’t offering free money.
They’re hoping your home’s value skyrockets, and if it does, you may end up wishing you went with a more traditional option like a personal loan or HEL.