Hometap Review 2021: An Alternative Way to Access Home Equity
Hometap is an innovating fintech company that give you an alternative way to access your home’s equity. Hometap invests in your home based on it’s current value. Rather than making monthly payments, you pay them back when your house sells or after 10 years, whichever comes first.
At a Glance
What we like
- No monthly payments
- Easy application process
- No interest
What Needs Work
- Risk of a forced sale
- Can’t estimate the payback amount
- Not available in all 50 states
- Those with equity in their home
- Homeowner’s looking for a small loan amount
- Those thinking of selling in the next 10 years
Traditionally, If you want to access your home’s equity, you need to take out a loan and make monthly repayments. Hometap is one of several companies giving you a unique alternative. Rather than taking a loan, Hometap will invest in your house for an immediate cash infusion without monthly payments.
Hometap isn’t a solution for everyone, but leveraging your home’s equity with Hometap will be a solid option for some homeowners. This Hometap review will help you understand the cost, how it works, the repayment process, and more.
Hometap Review 2021: An Alternative Way to Access Home Equity
Hometap is a fintech company that was founded in 2017 by CEO Jeff Glass. Their mission is to help homeowners tap into their home’s equity, providing them with an alternative to home equity loans or cash-out mortgage refinances. In a video on their website, Glass says, “Our mission is to make homeownership less stressful and more accessible.”
Essentially, Hometap invests in your home with you so you can have cash today to do a major renovation project, pay off high-interest rate debt, or something else. Then, you have 10 years to settle up with Hometap, either by paying them back with cash savings, taking out a loan, or when you sell your home.
Hometap is very clear that they aren’t a loan. Instead, they’re investing in your home’s future value, which should appreciate over time.
How Hometap works
To understand how Hometap works, you have to get in the mindset that this is not a loan — Hometap is making an investment.
Hometap requires that you settle up with them either when you sell your home or 10 years from the date of the initial investment, whichever comes first. You’re not making payments to Hometap during that period.
How it works when you sell your home:
Let’s say your house is worth $200,000, and Hometap agrees to give you 20% of the current value of your home, which is $40,000. If you sell your house in 8 years for $250,000, then you pay Hometap back 20% of the sale price, or $50,000. This has been a good investment for them. And in that scenario, you’re ultimately paying $10,000 later for $40,000 today.
However, if your home value drops, and you sell your house for $175,000, then Hometap is owed $35,000. They’ve lost money on this investment.
How it works when 10 years is up:
If selling your house isn’t in the cards, then you will need to repay Hometap’s investment through another source of funding, like cash savings.
Using the same numbers as above, with a 20% investment on a $200,000 home, Hometap will still need 20% back even if you don’t sell. Hometap looks at the appraised value of your home in 10 years, and that’s the figure used to determine the repayment.
If your home increased in value to $250,000, then you need to be prepared to pay Hometap $50,000. But if your home’s value decreased to $180,000, you’ll owe Hometap $36,000.
Hometap has a few requirements for investments:
- You have a single-family home or condo
- You have a credit score above 600
- You have a minimum 25% equity in your home
- You are looking for an investment amount under 30% of your total home value or under $400,000
- You live in one of the 13 states where Hometap offers its services
Hometap has a Fit Quiz that will help you determine whether or not you’re a good candidate for their services. You will also need to fill out an Investment Estimate before you get started, and the answers to this and the quiz are evaluated by one of their investment managers. Hometap will then contact you to get more information about your specific scenario.
Where Hometap is available
Hometap is currently available in the following 13 states:
- New Jersy
- New York
- North Carolina
Hometap fees & cost
There are a few fees you’ll need to consider, plus the investment cost on your end. Let’s start with the fees first.
Hometap charges a fee equal to 3% of the investment. This fee allows them to arrange and fund the investment. For a $20,000 investment, you’re paying a fee of approximately $6,000. This fee is deducted from the investment amount when you receive the money.
There are no additional Hometap fees, but there are a few miscellaneous third-party costs you may encounter. These will vary based on the state and county you live in.
- Full appraisal $300-$800: You’ll need a third-party home appraisal to determine the market value of your home. If you’ve had an appraisal within the past three months, Hometap may waive the appraisal.
- Title charges $700-$800: This is the cost of facilitating the investment, including attorney fees, notary costs, settlement fees, and property report production.
- Government recording & transfer charges: These vary by state and county and include filing fees.
The cost of the investment depends on how much your home does or does not appreciate by the time you settle.
Let’s pretend that your home is worth $250,000 right now and Hometap invests 20% in the value, meaning you’ve received a lump-sum payment of $50,000.
In 10 years if your home has increased in value to $300,000, you will owe Hometap $60,000 for their 20% investment. You’re essentially paying $10,000 to access $50,000 for 10 years.
Hometap costs vs. HELOC
Curious how Hometap compares to a HELOC cost-wise? The short answer is that it depends on the amount you borrow and the length of the loan. Keep reading for the long answer.
If you’re unfamiliar with a HELOC (or home equity line of credit), it’s a revolving line of credit secured by your home. It gives you a lump sum upfront to spend, and then you make monthly payments over the life of the loan. HELOCs have variable interest rates, so the payments aren’t usually fixed.
Because interest rates fluctuate on HELOCs, I’m going to use 6% as an average. Borrowing $50,000 with a HELOC over 10 years would cost you a little over $16,000 compared to the $10,000 it would cost to use Hometap.
However, there are other scenarios when a HELOC would save you money. If your home’s initial value was $300,000 and increased in value to $400,000 when you sold in 7 years, you’d be paying $20,000 to access $60,000 for seven years when using Hometap. Using those same numbers with a HELOC at 6% means you would pay just over $18,000. A savings of approximately $2,000.
I don’t want to get into the weeds with these numbers, but the point is that Hometap may cost you more than a HELOC. Generally, when you borrow money — even though Hometap isn’t technically a loan — you end up paying back more than you’ve borrowed. Lowering that amount helps work towards other financial goals.
One way a HELOC can cost you less is by making more than the minimum payment on your loan. Even an overpayment of $50-$200/month will lower your long-term loan cost. This isn’t an option with Hometap.
Hometap will typically be less expensive than a HELOC or home equity loan if you take a smaller investment amount. It can also work in your favor to wait until the full 10 years to pay the investment back to Hometap.
But if the housing market sees a dramatic increase, like what’s happened in 2020 and 2021, then Hometap may cost you more. You can’t time the housing market, but the point is that you also can’t really control how much you will owe Hometap.
The process of receiving a Hometap investment
The process starts with going to Hometap’s website and filling out an investment inquiry, which takes about 5 minutes to fill out. One of their investment managers will contact you if they feel you might be a good candidate. During that conversation, they’ll give you an estimate and explain specific terms, as well as answering any questions.
If you and Hometap decide to move forward, you need to set up an appraisal with a third-party company. That’s when you can determine the exact investment amount, which is generally between 5% to 30% of your current home’s value.
Once all the paperwork is filled out, submitted, and received by Hometap, then you’ll receive your funds. It can happen as quickly as two weeks, but most Hometap reviews say it’s taking around a month.
Who is Hometap best for?
There are some situations when Hometap can be a great way to pull equity out of your house.
- Homeowners looking for a smaller loan amount: Hometap can be less expensive than a HELOC if you’re looking for a smaller loan amount.
- Those thinking of selling in the next 10 years: You have to pay Hometap back 10 years from the investment date or when you sell your house. When you sell they take their investment out of the proceeds of the sale. Not selling means you’ll need to come up with cash to pay back their investment.
- Homeowners with built-up equity: Hometap requires homeowners have a loan-to-value ratio of no more than 75%, meaning you need to have paid off at least 25% of your home’s value.
Who shouldn’t use Hometap?
Because Hometap requires you to have a certain amount of equity in your home and a settlement by the 10-year investment mark, Hometap may not be an ideal situation for homeowners in the following situations:
- Long-term homeowners: If you don’t plan on selling by the 10-year mark, you will have to pay Hometap back with cash savings or some other kind of funding. Taking cash from your emergency fund, pulling from retirement savings, or taking out a loan could hurt your finances.
- Those without much equity in their homes: You need to have paid off 25% equity in your home, and having equity is one of the things that allows you to make money on the sale of your house. Without much equity, you may not qualify for Hometap, or you may not make as much when you sell your house within 10 years.
- Homeowners wanting a large loan: Hometap will most likely cost you more in the long term if you’re taking a sizeable investment. The math generally works in favor of a HELOC or home equity loan in these situations.
Is Hometap legit?
Hometap is a legitimate company with hundreds of mostly very positive reviews on sites like Trustpilot. The most common Hometap complaints are that the application and approval process took longer than they expected.
Hometap pros and cons
- No monthly payments: You don’t pay Hometap back with monthly payments, unlike a HELOC, home equity loan, or personal loan. However, you are required to pay back the investment within 10 years.
- No interest: The full amount you pay Hometap back is based on the value of your home, not accrued interest throughout a loan.
- Easy application process: The process is simple and Hometap handles pretty much all of the paperwork for you.
- Costs: Hometap has a 3% fee for the investment, and the cost may be more than a HELOC if you take a large investment or if your home increases in value significantly.
- Risk forced sale: If the 10-year term is up and you can’t afford to pay Hometap back for their investment, they may force you to sell your home to recoup their investment.
- Not available everywhere: There are only 13 states where Hometap is currently available.
- Can’t estimate payback: Because the amount you pay Hometap back is based on the current value when you sell or at the 10-year mark, you can’t accurately estimate what you’ll pay them back.
Hometap review: the final word
Hometap provides homeowners with an alternative way to access their home’s equity without making payments or accruing interest. And Hometap can be less expensive than a HELOC for some homeowners. That’s especially true if you are taking a smaller loan amount, have a decent amount of equity in your home, and want to sell within 10 years.
I normally recommend crunching the numbers to see if the math makes sense, but that’s one of the difficulties with Hometap. You have no idea what your home will be worth when it’s time to pay them back because it depends on your home’s value at the time.
Still, if you need a cash infusion and are looking for options, I would seriously weigh up the pros and cons of Hometap to decide if it’s right for you.
Sharing is caring!
Posted in: Make More Money
About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.