Home equity investment pros and cons explained

If you’re thinking about tapping into your home’s value but aren’t sure how, a home equity investment (HEI) could be worth considering. 

Unlike traditional loans, it gives you cash upfront in exchange for a share of your home’s future growth — without adding monthly payments. But this isn’t the right choice for everyone.

Read on to explore the pros and cons of a home equity investment so you can decide whether it fits your goals and your comfort level.

How does a home equity investment work?

Before outlining what an HEI is, let’s discuss the concept of home equity. This is the portion of your property that you truly own. It’s the difference between your home’s current value and any debts you owe, like a mortgage and a second lien. 

Over time, your equity grows most commonly in two ways: paying down your mortgage and increasing your home’s value through market appreciation and improvements.

An HEI lets you tap into some of that equity upfront. The process generally starts with an appraisal to determine your home’s market value. Based on that, an investor offers a lump sum now in exchange for a portion of any future increase in your home’s value. 

When the agreement ends or you sell your home, you repay the original amount plus the investor’s portion of the gain. If your home loses value, they may share in that loss as well.

Many homeowners choose an HEI instead of a traditional equity loan or home equity line of credit (HELOC) because there’s no interest and no monthly payments, making it a flexible way to access cash when you need it. 

...in as little as 3 minutes – no credit impact

What are the typical requirements for a home equity investment?

Before moving forward with an HEI, you’ll need to meet a few home equity investment loan requirements. They can vary by company, but most include:

— Property eligibility: Most investors accept single-family homes and primary residences. Some programs exclude condos and investment properties.

— Valuation and documentation: A home appraisal, or valuation, confirms your property’s current market value. Investors use this to determine how much equity you can access, and you may need to provide documents such as mortgage statements and proof of ownership.

— Credit profile: Investors look at your credit score and mortgage payment history to assess your financial reliability. They want to see that you consistently pay bills on time and manage debt responsibly.

— Equity amount: You usually need at least 20–30% of your home’s value in equity to qualify. The more equity you have, the larger your payout can be. 

4 benefits of choosing an HEI 

There’s a reason so many homeowners find HEIs appealing. Let’s dive into the top four advantages.

1. Receive a cash payout upfront

An HEI gives you access to a large lump sum without refinancing or adding new monthly payments. You can use the money for almost anything, such as home upgrades, debt payoff, and other personal goals.

2. Use funds however you like

There are generally no restrictions on how you spend the proceeds. Whether it’s a remodel, tuition, or another investment, the money is completely flexible. That said, some providers may set limits or require documentation for certain uses, so it’s always good to check the terms.

3. Avoid monthly payments and interest

An HEI differs from a home equity loan or HELOC because it doesn’t require monthly payments or charge interest. This makes it easier to manage your budget and keeps your debt-to-income ratio stable.

4. Repay on a flexible timeline

With an HEI, you have up to 30 years to repay the investment. You don’t have fixed monthly payments, and there’s no penalty for paying off early. So, you can settle whenever it works best — often when you sell your home, refinance, or reach the end of the term. 

4 reasons an HEI might not be right for you

Here are a few drawbacks that might make an HEI the wrong fit for a homeowner. 

1. Lose future profit

If your home increases in value, the investor takes a share of that growth. You get cash upfront, but giving up a portion of future appreciation could end up costing more than a traditional loan.

2. Limited availability

HEIs are offered only in certain states and metro areas. Check your provider’s website for a list of approved locations. Many also have online pre-qualification tools where you can enter your address to see if your property qualifies.

3. Fewer protections

HEIs aren’t regulated like mortgages and other credit products, so terms can differ from one agreement to another. For example, an investor may take a larger share of your home’s future appreciation than a mortgage lender would, and some standard consumer protections might not apply. Make sure to review your agreement carefully before signing.

4. Foreclosure risk

If you fall behind on mortgage payments or property taxes, your home could be at risk. Because the investor has a stake in the property, they may enforce repayment terms if necessary. This means it’s important to stay current on all payments and understand your obligations before taking on an HEI.

...in as little as 3 minutes – no credit impact

Home equity alternatives

If you’re exploring ways to tap into your home’s equity, several common options may fit your goals, including: 

— HELOC: A HELOC lets you borrow as needed from a revolving line of credit, so it’s a great idea for ongoing projects and expenses. Some providers, like Better, offer a one-day HELOC with a fast, fully digital application process and competitive rates. You can also explore the HELOC calculator to estimate your payments and borrowing potential.

— Home equity loan: Lenders review your credit, income, and home equity before approving a lump sum upfront. You can use the funds for nearly any purpose, but unlike an HEI, you must make monthly payments, and the lender doesn’t share in your home’s future gains.

— Cash-out refinance: A standard refinance can reduce your interest rate, shorten your loan term, and lower your monthly mortgage payments. With a cash-out refinance, you get an extra benefit: a lump sum of cash drawn from the equity in your home.

HEIs vs. other home equity options

Comparing HEIs with HELOCs, home equity loans, and cash-out refinancing can help you see which option best fits your financial goals. Here’s a table that shows the differences at a glance.

Is investing in home equity a good idea?

Whether an HEI makes sense depends on your financial goals and how comfortable you are sharing future value. It works well if you need cash now and want to avoid monthly payments. On the other hand, options like a HELOC and traditional equity investment loans might be better if you expect your home’s value to rise quickly and want to keep the appreciation.

For some homeowners, an HEI offers flexibility without extra debt. Ultimately, it comes down to the amount of equity you’re willing to share and what fits your long-term plans.

Choosing the right home equity option with Better

Understanding the pros and cons of an HEI can help you decide if it fits your priorities. It provides cash without adding monthly debt, but requires sharing a portion of your home’s future value. For many homeowners, that trade-off offers useful flexibility.

Better makes accessing your home’s equity even easier. Start your pre-approval today to see what you qualify for and take the first step toward unlocking that value. Complete the application in as little as three minutes and access your funds in about a week — much faster than traditional loans that can take up to two months.

...in as little as 3 minutes – no credit impact

FAQ

What’s a home equity investment loan?

A home equity investment isn't a traditional loan. Instead, investors provide cash upfront in return for a portion of your home’s future appreciation, without charging interest or requiring monthly payments.

How is a home equity investment repaid?

You repay the investor when you sell your home or at the end of the term. The repayment includes the original amount you received plus the investor’s agreed-upon share of appreciation, or less if your home’s value declines. There are no monthly payments, so you don’t have to worry about adding debt while you live in your home.