Hometap is a great way to tap into the money you have tied up in your house if you need some cash. Let’s look at Hometap in detail to see if it is a good option for you!
What Is Hometap?
If you consider yourself having a lot of equity tied up in your house but not much cash available, HomeTap could be the perfect opportunity for you.
Hometap gives you access to the equity you have tied up in your home, freeing up some money for you to use for a different purpose.
Through Hometap, you won’t have to go through the process of taking out another loan or taking on more monthly payments.
How Does Hometap Work?
Hometap allows you to use some of the equity you have tied up in your home as cash. IN order to do this, the company agrees on an amount they will invest in your home. This amount will be paid back to Hometap when you sell your home.
This is why Hometap differs from a home equity loan. Instead of it being a loan, Hometap treats your home as a stock, and they are investing in the stock.
Real Life Example
To explain how Hometap works, looking at a real-life example is always very useful.
Let’s say that your home costs $150,000. You may agree to a deal with Hometap that gives you access to $15,000 in cash upfront. When you go to sell your home, you will pay this money back to Hometap by taking it out of the sale of your home.
Pros Of Using Hometap
Hometap does offer many benefits, these include:
No Loan Payments
Hometap is an investor rather than a lender. This means that you won’t face rising interest rates and won’t have to make any monthly debt payments.
You can use the funds from your Hometap investment to pay off any debts.
No Home Inspections
When you initially make your deal, you will have to undergo a home appraisal. However, you won’t have to undergo any surprise inspections throughout the investment period.
There is no commitment to the company until it comes to selling your property or settling the investment ten years later.
Simple Process
From start to finish, this process is straightforward. You can sign up for Hometap online in 10 minutes and have your money in a few days.
No Hard Credit Check
When you are looking at the option of investing with Hometap, they will not complete a hard credit check. This means that your credit score won’t be impacted.
Cons Of Hometap
There are some disadvantages to using Hometap. These include:
No Immediate Funds
Hometap is not the quickest way to get cash in an emergency. Loans are much quicker to get than Hometap, as your home needs to be appraised before you can get the money.
If you need the money quickly and cannot wait, you may be better off turning to a lender who can get the money to you in a matter of days.
Long-Term Homeowners Should Be Careful
If you expect to stay in your house longer than the investment term, you should reconsider using Hometaop. The investment term is only ten years, so you will need to be able to access the money within this time.
If you are not considering selling your home within ten years, it may be difficult to access this money.
If you don’t have another way of coming up with this money within ten years, you risk a forced sale. This is where you have no choice but to sell your home to pay back the money you owe to Hometap.
Rise In Value
If your home goes up in value by a lot of money, you will have to pay Hometap a lot more than you initially expected.
Hometap puts a cap of a 20% annual appreciation cap in case the property rises in value substantially; however, this is still a considerable amount of money.
Interest Rates
Hometap offers a beneficial service to a lot of people. No interest rate payments are involved with the company, and you won’t be expected to pay any monthly fees.
Having said this, Hometap is not free, and you will have to pay back the money you received and some extra costs.
The extra costs come from the idea that when you take the payment from Hometap, you agree to pay back a portion of the value of your home in the future.
If you borrow 10% of the value of your home, you will have to pay back 10% of what you sell the house for.
If the house value increases in this period, you will pay Hometap back more money than you received.
This is why it is crucial to consider these costs when you agree to a Hometap deal. You should consider the amount you will owe Hometap compared to the amount you will receive.
Fees
While you will not receive any monthly fees from Hometap, the company is not free from fees altogether.
Hometap will charge you 3% of the amount you have invested as a closing fee to the deal. This money will come out of your initial proceeds.
You will also incur a few other fees if you use Hometap. You will need to pay an average home appraisal fee of $300 – $450.
You will also be required to pay a title charge of an average of $700. The government will also charge a filing fee of between $350 and $1000.
These are pretty high fees to consider, so ensure that you have included these in your calculations.
When Will You Pay The Money Back?
You will pay this money back to Hometap when you sell your home. However, if you don’t sell your home within ten years, you will have to pay the initial investment back through another payment source.
This is because Hometap investments have a maximum of 10-year terms.
Hometap Vs Equity Loans
If you consider all the options, home equity loans are usually cheaper. This is assuming that your home will rise in value over time.
Hometap is often used because it is difficult to qualify for an equity loan. Often, instead of equity loans, people turn to credit cards, and Hometap will often be less expensive than this option.
Am I Eligible For Hometap?
If you are considering Hometap, receiving the cash is reasonably straightforward.
Initially, you will need to complete a request to check if you pre-qualify for the help. You will have to answer some questions about your financial situation and property. This is a very short questionnaire.
You will then receive an estimate from Hometap, where you will also be paired with your investment manager to help you with the process.
If you agree to the terms that Hometap suggests, you will then fill out an application online.
After the application is complete, your home will need to be appraised. Hometap will then give you your final offer.
The next stage for you will be to accept the offer and close the deal with Hometap. After you have accepted, you will receive the money in a few days.
To qualify, you need to own a property in a state where Hometap operates. Currently, Hometap operates in 18 different states in the US.
You will not need to undergo a hard credit check because each property will be looked into individually. You will often need to own 25% of the property and have a credit score of at least 600 to qualify and get the best offers.
Frequently Asked Questions (FAQs)
What Happens If Your Home Loses Value?
If your home declines in value, you will still be required to pay the initial percentage you agreed to pay when you made your deal with Hometap. If this happens, you will owe Hometap less than the amount they invested.
Will You Owe Taxes?
Investments from Hometap are tax-deferred. You will not have to pay taxes because you have received an investment.
Final Thoughts
Hometap may be a good option for you if you want access to some of the equity you have tied up in the house. However, there are many disadvantages to using Hometap, which should be considered before you make your final decision.
Make sure that you take into account all of the pros and cons of Hometap so that you don’t end up losing out in the long run.
As a current Mortgage Underwriter with 15 years of experience, I have seen my fair share of money-related issues. Whether that be high levels of debt, not enough credit, or simply a lack of funds - I’ve had clients who fit into these categories.
Here I will share tips, tricks, and experiences on how you can get yourself back in control of your finances.
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