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Hometap Review
Hometap Review | Best Home Equity Lenders 2021
Hometap Review
Hometap Review | Best Home Equity Lenders 2021
March 08, 2021 / Nadav Shemer
Hometap Review
Hometap Review | Best Home Equity Lenders 2021
March 08, 2021 / Nadav Shemer
At a Glance
Hometap is like a home equity loan provider, but without the stress of monthly payments. Basically, Hometap invests in your home in exchange for a share of your home’s future sale price or market value. Once the deal is closed, HomeTap sends you the funds right away. In return, you commit to paying the settlement within 10 years. You don’t have to sell to settle; you can buy out Hometap’s share at any time based on your home’s market value.
How it works
The HomeTap model sounds complicated, but it’s actually quite simple. When you choose Hometap, it becomes an investor in your property – and gives you cash for its equity stake. Unlike a mortgage lender or home equity loan provider, Hometap doesn’t involve any interest rate or monthly payments. The only thing you commit to is to give Hometap its share of the proceeds at the time of settlement.
Here’s how it works in 7 steps:
1.Prequalify (1 minute). Provide your address, property type and property usage to find out if you prequalify for a Hometap investment.
2.Investment estimate (0-2 days). If you prequalify, HomeTap will send you an investment estimate including estimated terms specific to your property. A Hometap investment manager will then set up a call with you to walk through the numbers and answer any questions about the application process.
3.Submit your application (20 minutes). Following the call with your dedicated investment manager, you can upload and/or scan your documents to Hometap’s secure application portal.
4.Closing (2-3 weeks). In order to close the investment, Hometap will schedule a physical appraisal of your property using a third-party appraiser. This step may be bypassed if you can show proof of an independent appraisal that is less than three months old.
5.Signing. Once you accept the investment offer, Hometap will schedule a signing.
6.Funds transfer (2-3 days). A few days after close, Hometap will wire you the funds.
7.Settlement. You must sell or settle the investment within 10 years. If you don’t wish to sell your home, you can settle it from your own funds (with Hometap’s share calculated from an updated appraisal of your home’s market value).
Pros and Cons
Pros
Less risky than a home equity loan
No monthly repayment
No prepayment penalties
Cons
Strict eligibility criteria
Not available (yet) in most states
The beautiful thing about partnering with Hometap is that it involves few of the risks of a traditional home equity loan. Like a mortgage lender or home equity lender, Hometap will put a lien on your property, meaning it has a legal right or claim against your property until you fulfill your side of the agreement (in this case, the settlement). But unlike other lenders, Hometap doesn’t put you under the stress of a monthly payment. If the value of your home goes up before you sell it, Hometap’s share increases. If the value goes down, Hometap’s share falls (that’s the risk it takes). And you always have the option of not selling your home and funding the settlement another way (such as from another loan or from your own pocket, if your financial situation allows it).
Aside from the fact that you give up equity in your own home (which is a factor to take into consideration when taking any type of home equity loan), the other downside to Hometap is the strict eligibility criteria. To qualify, you’ll need to have at least 25% equity in your home and a credit score of at least 600 (or 630 to give yourself a stronger chance of qualifying). Also, Hometap is only able to invest in homes in 12 states (as of March 2021), although it promises there are more on the way. The states are: Arizona, California, Florida, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, and Virginia.
Loan Features
Hometap can take up to a 30% equity stake in your home and fund you for up to $400,000. Here’s a breakdown of some of the other ways Hometap is different from a traditional home equity loan or home equity line of credit (HELOC).
Hometap Home equity loan HELOC
Max. equity stake 30% N/A N/A
Max. funding $400,000 $1 million $1 million
Min. credit score Typically over 630 620 620
Max loan-to-value 75% 80-85% 80-85%
Max debt-to-income N/A 43% 43%
Other restrictions No prepayment penalties Prepayment penalties Minimal annual draw requirements, prepayment penalties and cancellation fees
Rates and Terms
Unlike traditional home equity lenders, Hometap doesn’t have any interest rates or monthly payments. When choose Hometap, you commit to paying 13.9% to 16.7% of your home’s value at sale, settlement, or refinancing. Note that there are also fees and charges to pay at the beginning of the process, namely a fee worth 3% of the investment, some minor signing costs, and the cost of a third-party appraiser.
The repayment term is 10 years. If you sell your home early, then you must pay Hometap its share of the proceeds. Alternatively, you can choose to pay Hometap its share of your home’s market value at any time during the 10-year period.
Again, here’s a breakdown compared to home equity loans and HELOCs.
Hometap Home equity loan HELOC
Due at settlement 13.9% - 16.7% Outstanding principal Outstanding principal
Costs and fees 3% of investment + signing costs 3-5% of the loan amount $100 in annual fees
Repayment term 10 years 10 years 10 years
Contact Hometap
The Hometap application process is part-online, part-offline. All paperwork is submitted online, but the signing takes place in person and communication with your dedicated investment manager takes place over the phone.
Phone: 617-415-4419 (Mon-Thu, 8am – 8pm EST, Fri 8am – 5pm EST)
HQ: 800 Boylston St., 16th floor, Boston, MA 02199
Summary
If you own your own home and find yourself in need of funds, then Hometap is as unique and compelling alternative to traditional home equity loans. While it is not without its risks, the fact that Hometap offers the main benefit of a home equity loan (instant funds) without the main downside (monthly payments) makes it an option worth consideration.
By Nadav Shemer
Nadav Shemer specializes in business, tech, and energy, with a background in financial journalism, hi-tech and startups. Nadav writes for bestonlinemortgageloan.com. He enjoys writing about the latest innovations in financial services and products.
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