What Realtors Should Know About Home Equity Investments Now

The real estate market is changing fast amidst COVID-19.

As Realtor.com has noted, some markets are hot, like Colorado Springs and Fort Wayne, Indiana, and some are struggling, like Allentown, Pennsylvania, and Milwaukee, Wisconsin.

Overall, nearly half of real estate agents have seen interest from homebuyers drop compared to a year ago, according to the mid-March National Association of Realtors Economic Pulse Flash Survey.

Buyers may be wary to purchase a home during a pandemic. Is it safe to go to open houses? Is it wise to move now? But, more likely, buyers are unsure about buying a new home when their own home is still on the market—even with low mortgage interest rates.

Uncertain about how quickly their own home will sell, many buyers are feeling financially constrained. Is it smart to take out a new mortgage while there’s still an existing one to pay in times like this?

That’s where a home equity investment could provide buyers the immediate cash flow they need to buy a new home while their home is still on the market.

What’s the difference between a bridge loan and a home equity investment?

A bridge loan is the more traditional option for buyers looking to purchase their next home before their current house is sold. These short-term loans, however, often come with high interest rates. That means a buyer has to take on additional debt that they may not have the ability to, particularly in the current climate.

The terms may differ depending on the loan, but most bridge loans have a six-month to year-long term, which may or may not provide the time a buyer needs to sell their home. The loan will likely require the homeowner to make monthly payments and, in some cases, pay interest up-front or as one lump sum at the end of the loan term.

A home equity investment, on the other hand, gives homebuyers a portion of the equity they have built in their current home without monthly payments and zero interest. This allows homebuyers to get much-needed cash without taking on additional debt.

Instead, the homebuyer settles the investment when the house is sold. With a ten-year term, home equity investments like Hometap give homebuyers a longer period in which to sell their home. This takes some pressure off buyers to sell within the year.

Other ways homeowners can use a home equity investment

For homeowners who want to build their next home, a home equity investment can also provide the necessary cash they need to build the home now without a loan.

According to a National Association of Home Builders poll, 96% of builders say they’ve seen reduced demand for newly constructed homes. And Realtor.com reports buyers can find huge discounts for lots on which to build their custom home.

Alternatively, if a home needs significant renovations to make it move-in ready, buyers can use a home equity investment to fund the renovations without taking on a loan.

In either case—custom build or major renovation—homeowners can continue to live in their current home as those renovations are made.

Depending on the cost of their new home and the equity a homebuyer has built up in their existing home, a home equity investment could also provide the homebuyer the funds needed to make an all-cash offer on a house, speeding the closing process. Or, it may allow for a large down payment. Most investment providers offer up to 30% of the home’s value or $300,000+.

For homebuyers looking for peace of mind as they prepare to move, unsure how quickly their home will sit on the market, a home equity investment is a viable option that so many homeowners and realtors are unaware of.

As a realtor, you need more tools in your toolkit now more than ever. By letting homebuyers know how home equity investments can help them move forward with their goals, you can open up the door to more possibilities for homebuyers and enable them to pounce on a deal when they see one they like.