Hometap instead of HELOC?

Question

I have a client interested in using Hometap instead of a HELOC. This is the first time I’m hearing of this program. Anyone have experience or feedback on the product?

-https://www.hometap.com/homeowner-resources/how-hometap-works/

Jeremy Kitchen · Answer

I found this post on a reddit search

"I have a house as an investment property with equity I'd like to access to buy a home, but because banks think everyone lost their jobs and because of this many will default past the forbearance, trying to get a cash out loan from an investment property is ridiculous, with a 710 credit score, they were asking 5 points to pay down the rate to something reasonable (4-5%), eating into the cash I can get access to. I don't want to seek the house (15 years left).

So, I found an alternative where a company, such as HomeTap, essentially invests in your home, gives you cash, does not pull a hard credit inquiry. In return you agree to sell the house in 10 years or buy-out their position in the property. I am assuming they get added to the title for a specific percentage of the property and reap the benefits of both fees and appreciation and can force a sale if you don't sell or buy them out."

That makes it sound like they have a lease or buy option to buy your house in 10 years.  So say 10 years pass, and you don't have enough instantly available to payback their terms of the loan, they might get first option to buy from you or force you to sell your property to them.

That being said, all the reviews seem legit, but keep in mind, companies can buy reviews as well.  If you're interested, just make sure you read ALL the fine print, and protect yourself/your investment first.

Nathan Grabau · Answer

@Dave Skow I have gotten their mailers on my house, and essentially when I researched them you are essentially selling them equity in your home. While I get the value proposition for some as an alternative to a reverse mortgage, I do not see how it is a value proposition to an investor. You are essentially giving equity away at a rate that is much more favorable for them than the current home owner.

Brenden Mitchum · Answer

Hey @Kati Henry Ortiz

I have not used Hometap before but sounds like refi for people who can't qualify for bank refi. That "How it works" video did not at all explain how it works but I'm assuming they have an investor fund of some sort that they pull from to loan on the equity, likely at a much higher rate than a bank refi.

If you do end up going with them or learning more about the program, please share your experience with us!

Larry Turowski · Answer

Here is how I imagine it works. Or how I would work it if I were a bank.

I am a bank and I want to make 5% on the loan. Why is 5% good to a bank, after all the stock market averages 7 to 8%?  Well, you see, the bank only needs $10,000 to make a loan of $100,000. The rest is basically created out of nothing. So 5% of 100,000 is 5,000.  They make 5,000 on 10,000.  Talk about cash on cash return!

Okay getting back to hometap. Lets say you have enough equity that they can give you 10,000. And the house is currently worth 100,000. They could structure the investment to be 10% of your home equity, growing at 0.3% per year (and they Amy assume appreciation would provide another 0.2%) or 10,500 in equity after the first year and increasing by an amortization table, whichever is greater.

You settle when you sell or within 10 years, whichever comes first.

The benefit to the owner would be no payments. But it could come at a steep cost.

Dave Skow · Answer

@Kati Henry Ortiz- interesting  ...this sentence from the site   is a bit concerning "exchange for a share in your home’s future value"  ....there isnt  enough  info  to make a  statement ?  max  ltv/ cltv?   is this loan  secured ?  how is the  future  value   and  payback  amount  determined ?   way too many questions  and  site looks good  but  answers none

Evan Polaski · Answer

@Kati Henry Ortiz this is an interesting concept, but I feel skeptical (maybe because it is new and a different approach).

I do feel like there is likely intentionally little information on the website, and it is so new that even reviews are more of a "here's what it is" versus thorough good and bad of it.

Obviously, every avenue is worth exploring, but since they are an "investor" in your property now, I have a feeling when it comes time to fund, your clients will get far less money than they think.

Hometap is taking a risk by being equity in your home versus a second lien, so the cost of capital is likely much higher (effective interest rate), and since they are essentially delaying that payment for an unknown amount of time, the cash available today is going to be very little.

Hometap instead of HELOC?

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