Home Equity Agreement: How to Convert Home Equity Into Cash With No Payment or Interest

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A home equity agreement is a unique and little-known way to convert home equity into cash with no mortgage payment and no interest – even if you have limited income and/or low credit scores. Sounds intriguing, right? But is it legit? We’ll cover how it works and a few things to watch out for.

What Is A Home Equity Agreement?

So, what is a home equity agreement and how does it work? A home equity agreement is a type of home equity product that enables you to borrow from your home equity with no mortgage payment and zero interest – even if you have low credit scores or limited income.

Homeowners commonly use home equity 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 medical, dental, and vet bills, which can burdensome for many homeowners. 
  • Pay for home repairs and improvements.
  • Set up a rainy day fund to cover financial emergencies.
  • Pay for college tuition and expenses.
  • Make a large purchase.

There are usually no restrictions on how you use the funds. You can use the money for whatever you like. 

How a Home Equity Agreement Works

Home equity agreements 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 is 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).
  • Flexible income requirements. Because there are no monthly payments, the income requirements are more flexible than a regular mortgage.
  • You may qualify even if you have bad credit. Minimum credit scores are usually around 500.
  • Keep your existing mortgage. You may be able to qualify with and keep your existing mortgage.
  • No age minimums. A home equity agreement could be a good option for homeowners who are too young to qualify for a reverse mortgage. The minimum qualifying age for a reverse mortgage is typically 62, but there are no age minimums for a home equity agreement.

Home equity agreements aren’t available in all states. Click the button below to find out if you’re eligible with Unlock, a leading provider.

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Other Considerations

The home equity agreement is a legitimate product, but there are some things you’ll want to consider to make sure it’s a good fit.

Remember, the lender eventually wants to get their money back plus their share. Home equity agreements typically have end dates that range from 10 to 30 years, depending on who you’re working with.

If you don’t sell your home by the end date, you’ll need to repay the investor using cash, another loan, or some combination of both.

Closing costs can equal 3%-6% of your payout. Home equity agreement companies often charge origination fees along with the usual home loan fees like title, escrow, recording, appraisal, credit report, etc.

There may be additional fees at the end of the contract as well. Make sure the lender spells out what you can expect before signing on the dotted line.

Even though there’s no payment, it’s still possible to default. Default events include falling behind on existing mortgage payments, property taxes, homeowner’s insurance, and HOA dues (if applicable). Other defaults could include zoning restriction violations, unpermitted additions and modifications, bankruptcy, and letting the home deteriorate.

If you default, you may have to reimburse the lender for fees incurred to work out and resolve the default. If the default is serious and can’t be resolved, you could face foreclosure.

The home equity agreement is a legitimate product, but it’s different than what most homeowners are used to. Even if you’re working with a reputable company who discloses and explains everything thoroughly, it can be easy to overlook important considerations that could have a significant negative impact in the future.

Make sure you thoroughly understand how the home equity agreement works before closing.

Frequently Asked Questions

Is a home equity agreement a good idea?

Whether it’s a good idea or not depends on your goals and financial situation. A home equity agreement offers access to your home equity without a regular loan. No payment is required and zero interest is charged in exchange for a share of your future home value. A home equity agreement could be a good option if you have limited income and/or poor credit and can’t qualify for a traditional mortgage, home equity loan, or HELOC.

How do you qualify for a home equity agreement?

You need to own your home, maintain it reasonably well, and have a significant amount of home equity. There are typically no minimum income requirements, but you will likely need to have at least a 500 credit score.

How much does a home equity agreement cost?

Closing costs for a home equity agreement vary, but they’re comparable to regular mortgage of the same loan amount. You can expect the closing costs to range between 3% to 6% of your payout amount.

What is a home equity agreement used for?

Most homeowners use it to pay off high interest debt, reduce monthly expenses, rebuild credit scores, and do home improvements. However, you can use the funds for pretty much whatever you like. A home equity agreement is a great alternative to a regular mortgage because it doesn’t require a monthly payment and no interest is charged.

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Mike Roberts
About Mike Roberts

Mike Roberts is the founder of HEAZone.com, a published author, and a highly experienced veteran of the mortgage industry. When he's not working, he enjoys spending time with his family, skiing, camping, traveling, or reading a good book. Roberts is the author of The Reverse Mortgage Revealed: An Industry Insider’s Guide to the Reverse Mortgage, which is available on Amazon.