6 Alternatives to Home Equity Loans You (Probably) Haven’t Thought Of

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A traditional home equity loan isn’t always the best way to convert home equity into cash. If you have limited income and/or low credit scores, you may find it difficult to qualify for a home equity loan. Fortunately, some good alternatives to home equity loans are available.

What Is a Home Equity Loan?

The term home equity loan refers to any type of home loan that enables you to borrow against your home equity. Mortgage professionals also commonly refer to home equity loans as “cash out” mortgages, HELOCs, and second mortgages.

Home equity loans are typically offered by traditional banks and mortgage lenders that tend to have strict income and credit qualifying requirements.

If you have limited income and/or damaged credit, it may be difficult to get a home equity loan from a regular bank. We’ll cover six alternative ways to get equity out of your home.

Potential Alternatives to Home Equity Loans

Here are some alternative ways to get equity out of your home if a home equity loan isn’t workable or isn’t a good fit:

1) 401(k) Loan

A 401(k) loan may be a good alternative to home equity loans if you have a large 401(k) balance. Check with your human resources department at work to find out how to apply for a 401(k) loan.

Keep in mind that the loan will need to be repaid in full if you quit or lose your job. Otherwise, the IRS may consider it a withdrawal and may hit you with taxes and early withdrawal penalties.

2) Auto Loan

If you owe little to nothing on your car, you may be able to “cash out” some of that equity. This can be a great alternative to home equity loans if you don’t need a large amount of cash.

Keep in mind that if you don’t make the payments on time, your car could get repossessed.

3) Reverse Mortgage

If you’re over the age of 62 and have a lot of equity in your home, a reverse mortgage could be one of the better home equity loan alternatives available to you.

No mortgage payments are required as long as at least one borrower lives in the home and pays the property taxes, homeowner’s insurance, and HOA dues (if applicable).

You remain the owner of your home and you’re free to leave it to your heirs, who will inherit any remaining equity in your home.

If you would like to find out how much you can potentially get from a reverse mortgage, check out this reverse mortgage calculator.

4) Life Insurance

If you have a universal life or whole life insurance policy with a cash balance, you may be able to borrow against it. Check with your insurance company to find out how the process works and any fees that may be incurred.

5) Personal Loan

Personal loans are typically unsecured, so the interest rates are often higher than comparable home equity loans. However, qualifying is usually easier and faster than for home equity loans, which makes them a great alternative to home equity loans.

There are tons of lenders out there who operate online. It’s possible to submit an application line, be approved in minutes, and have your funds within a few days.

6) Home Equity Share Agreement

Also called a shared equity agreement, equity agreement, or home equity agreement, this is a little-known but unique alternative to home equity loans.

A home equity share agreement enables you to borrow from your home equity with no mortgage payment and zero interest – even if you have low credit scores and/or limited income. Homeowners commonly use home equity share agreements to:

  • Reduce monthly expenses by paying off high interest credit cards, personal loans, auto loans and other debts.
  • Rebuild credit scores by reducing outstanding debt and cleaning up damaging collections and charge offs.
  • Pay burdensome medical, dental, and vet bills, which can run into the thousands of dollars or more. 
  • Pay for home repairs and improvements.
  • Set up a rainy day fund to cover financial emergencies.
  • Pay for college tuition and expenses.

. . . or anything else you can think of! For most homeowners, there are no restrictions on how you use the funds. You can use the money for pretty much whatever you like. 

A home equity share agreement can be structured in a variety of ways, but here’s how they generally work:

  • You receive a large lump sum of cash based on the equity in your home. Again, you can use the cash for whatever you like: pay off debt, improve credit scores, pay medical, dental, or vet bills, do home improvements, pay college expenses, set up a rainy day fund, or make a large purchase.
  • No monthly payments are required and no interest is charged. This can be a big advantage over a traditional cash out refinance, home equity loan, or HELOC.

In exchange for the lump sum, you agree to repay the lender a percentage of the value of your home at a future date, such as when you sell the home, the last borrower passes away, or the contract term ends.

  • You remain the owner of your home, which means you’ll continue to pay your property taxes, homeowner’s insurance, and existing mortgage payments and HOA dues (if applicable).
  • There are no minimum income requirements. Because there are no monthly payments, there are typically no income requirements.
  • You don’t need perfect credit. Minimum credit scores are usually around 500.
  • Keep your existing mortgage. You may be able to qualify with and keep your existing mortgage.

Home equity share agreement aren’t available in all states. Click the button below to find out if you’re eligible.

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Frequently Asked Questions

What is an alternative to a home equity loan?

A home equity agreement or equity share agreement is a potential alternative to home equity loans because it doesn’t require a payment and no interest is charged. Because no payment is required, it can be easier to qualify for an equity share agreement than a home equity loan, even if you have limited income and/or low credit scores.

Is there a better option than a home equity loan?

An equity share agreement is a potential alternative to home equity loans because it doesn’t require a payment and no interest is charged. Equity share agreements are often easier to qualify for than home equity loans, even if you have limited income and/or low credit scores.

How can I take out equity without a loan?

Yes, you can, by taking advantage of an equity share agreement (also known as a home equity agreement). Equity share agreements are not like traditional home equity loans. They don’t require payments and no interest is charged. They’re often easier to qualify for than home equity loans as well.