Hometap: Tap Into Your Home Equity Without Selling Your Home OR Monthly Payments?!
Sounds too good to be true, right? Well, think twice; Hometap is a Home Equity Investments proptech company that uses a homeowner-first approach. They aim to help homeowners “tap” into their home equity in a simple, straightforward, and transparent way. They provide funds with no interest and no monthly payments. It is basically a way for homeowners to get paid for the equity that they have built in their homes without getting a loan. How do they do this, you ask? Their Smart Loan Alternative.
The Smart Loan Alternative
Hometap is not a Lender, they are Investors. They will invest in home equity alongside Homeowners. Because they invest with you, they are never receiving monthly payments from you, and they are not guaranteed a return on the investment they make. With the Hometap Smart Loan Alternative, you can put the money you have in home equity towards needs or other opportunities without ever increasing your “debt” or monthly payments. In exchange for their investment, Hometap receives a share of your home's future value.
If your home appreciates, Hometap will gain their “Hometap Share” portion of the appreciation, but this appreciation is capped at 20% per year. Hometap also charges a 3% investment fee for arranging and funding the investment. This is the only other fee that Hometap will charge.
The Investment Process
The investment is a simple 4 step process meant to be as straightforward as possible. You can request an estimate on their Website and prequalify in seconds. The pre-qualification process is short and requires two categories of information: Property Information & Homeowner Information. After you fill this out, you will receive your Calculated Investment Estimate (assuming you and your property qualify).
You will also receive a dedicated Investment Manager to help you through this entire process.
After your application is fully submitted, Hometap will send in a third party to conduct an appraisal of the property to determine its value. The Application, combined with the Appraisal, will be the basis of where Hometap will finalize its offer.
If the Offer is accepted, a signing will be scheduled, and funds will be wired. Simple as that!
Pay off College Debt Without Interest Or Monthly Payments
Now for the part, we have all been waiting for… Can you Pay off College Debt without Interest or Monthly Payments?
For Parents of College Students who are “house rich but cash poor” Hometap may be a perfect option. Let me explain what I mean by house rich but cash poor; Say you bought your home ten years ago for $200,000 and haven’t missed a payment. Because of your circumstances, you have not been able to set much money aside. But now, present-day, you own about 20% of your home (or what should be $40,000). But, because the Real Estate market has been BOOMing, this 20% is worth much more than $40,000.
Note: Housing prices in the U.S. increased 48.55% over the past ten years, according to RenoFi.
This would make a $200,000 house purchased ten years ago worth $297,100 today!
Your 20% would be worth $50,420. So, you can now pull out a percentage of money based on the current value of the property (calculated worth $297,100) without adding any additional payments or interest to your monthly expenses. While this will may not pay for an entire college education, it still is a large chunk of change that you can use to pay down your child’s education without the hassles of adding monthly payments or interest expenses.
Typical Student Interest can range from 3.7%-13%, and some of them even charge a percentage fee. Using Hometap for student loans can save you on interest and the percentage fee.
What Else Can It Be Used For?
A Hometap Investment can be used for just about anything. From College Payments to Small Business Financing to Funding Rental Properties and Everything in between! There are no restrictions on what the money can be used for.
Who Can Use Hometap?
Hometap is currently available in Arizona, California, Florida, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Virginia, and Washington. But they have been expanding their reach so if your state is not yet listed, check the Hometap Website for updates.
Each Hometap Investment is unique, meaning there are no criteria set in stone, but here are some general investment scenarios that typically lead to quality investments: 1) You have a Single Family Home or Condo in one of the above states where Hometap is operating 2) Your Credit Score is above 600 3) you have at least 25% equity in your property 4) You want to pull out less than 30% of your equity (or less than $600,000)
Hometap Investment vs Other Options
Before getting into any of the other options out there for something similar to Hometap’s Smart Loan Alternative, it is important to mention that Hometap is the easiest option to qualify for.
For house rich cash poor people, there are a few options you have to tap into the equity of your home. To name a few: Cash-out refinance, Home equity line of credit, Home equity loan, and Home equity investments (Hometap’s Smart Loan Alternative).
In a cash-out refinance, most homeowners need a 620 credit score or higher. The process of a cash-out refinance is as follows: your current mortgage is substituted for a new loan for a larger amount than what you presently owe on your house. This implies that you receive more money than what you owe. And you can use the money for almost anything. Signing Costs of a cash-out refinance are typically between 2% and 5% of the loan amount plus any prepayment penalties that you may have to pay. It is also only smart to take out a cash-out refinance if your new interest rate is lower than your current rate.
The use of a home equity line of credit (HELOC) is becoming increasingly popular. It is expected that 10 Million customers will have a HELOC from 2018 to the present day compared to 4.8 Million from 2012-2016. This is more than doubling! HELOCs are popular in short-term financing, essentially like a credit card that uses the equity in your home as backing. The HELOC has become very popular recently because there is very minimal money down upon signing. Although, they typically will come with annual fees and large prepayment penalty fees, and on top of this, you risk foreclosure. HELOCs are also adjustable rates meaning your interest rate can go up, increasing your payment at any time.
Home equity loans are when you borrow money on the equity that you already own in a property. You are essentially taking out a second lien on your property. They typically require a credit score above 620. The fees associated with home equity loans are normally about 3%-5%. This type of debt is typically done when someone is trying to consolidate debt at a single lower interest rate.
Hometap’s home equity investment will pay you for the equity that you have built up in your home. The difference is that you are not taking out a loan at all. You are never paying monthly payments or interest on the money that you are paid. In exchange for this payment, you are giving Hometap a portion of the future value of your home.
Here is an image taken from Hometap’s Guide, found on their website called “Tapping into your Home’s Equity: Your Options & How They Compare.” For more information, I recommend Downloading and reading this guide.