For most people, their home is their largest asset. Tapping into the equity in your home can be a great way to access cash. However, accessing the equity can be difficult for some homeowners, especially those with low credit scores.
The good news is that there are a few different ways homeowners can obtain cash from their home equity. Let's take a closer look at the options.
If you're interested in having more flexibility and remaining an owner in your home, co-ownership with Balance could be a great option. Homeowners receive a cash investment from Balance for an ownership interest in the home — they remain on title, and continue to hold equity in their home, sharing in the costs, appreciation, and depreciation with Balance.
With Balance, your mortgage loan will be paid off and replaced with an equity investment. As a homeowner with Balance, you would make a monthly payment that covers your occupancy and share of the home's expenses.
Balance offers homeowners a seven-year term with no minimum. This means homeowners can sell, move, or refinance at any time within the period. A Balance co-investment is a great way to receive the funds you need, while being able to save money, pay down debt, and improve your credit score.
When you partner with Balance, you can get paid cash for some of the equity in your home while continuing to own and live in your home.
Our solution could be the best if you’re worried about being able to pay your mortgage in the future or if you have come up against an unexpected financial crisis, like an expensive medical bill. You could get the money you need to stabilize your finances without selling your house and finding somewhere else to live.
Another option is to enter into a rent-back agreement. A rent-back agreement is an arrangement where the buyer agrees to immediately rent the home back to the seller for a specified amount, usually no more than 60 days after closing.
This arrangement has benefits for both sides, including:
This could be a great way to sell and stay in your home temporarily, just like working out an informal arrangement with a homebuyer.
However, a rent-back agreement is probably a better option if you need to stay in your home for several months instead of just a few days or weeks.
What if you need to sell and stay in your home on a more long-term basis? In that case, you could try a leaseback agreement.
Also known as sale-leasebacks, a leaseback agreement doesn’t require you to move at all. Instead, you sell your home to a buyer, who leases the property back to you. You’ll make regular lease payments to that buyer for years to come.
A leaseback agreement can be perfect if you need to sell your property to avoid the burdens of homeownership but don’t want to leave the house.
Leaseback agreements can also be advantageous for companies that need to sell their retail real estate without the hassle of stopping their business operations. At the same time, they could move to a new location without interrupting their business and cash flow. An important note, however, is that you would no longer own your home in a leaseback agreement.
Home reversions are another option that may allow you to sell and stay in your house. A home reversion is a tax-free equity cash out typically used by elderly individuals to cover their living expenses.
With a home reversion, you sell the equity in your home in exchange for either a monthly income stream or a cash lump sum. Sometimes, you can opt for both, with a portion provided upfront and the rest sent via monthly deposit.
With a home reversion, most sellers receive a lump sum between 20% and 60% of the equity’s market value.
If the house is sold later on, the company that offered the home reversion agreement gets a share of the proceeds (which is profitable for them if the equity in the house increases through appreciation). The rest will typically go toward an inheritance or other financial account.
Home reversion plans are especially great for elderly individuals looking to downsize. The extra money can help manage living costs or be easily added to your retirement fund. The best part is you don’t have to leave your property during or after the home reversion.
You can continue living in your home, and you’ll be retaining ownership. Of course, it would mean you’d have a reduced share of property ownership, meaning you wouldn’t get the full market value compared to selling your home traditionally to a willing buyer.
A home equity loan allows homeowners to access the value locked in their property — without having to sell it. This type of loan leverages the equity, or the difference between the market value of the house and the remaining mortgage balance, as collateral.
A few benefits of this method include:
That said though, a traditional home equity loan might not be ideal in every scenario. For example, since the home itself is used as collateral, failing to make timely payments can lead to foreclosure, meaning you could lose your home. There may also be upfront fees and costs, such as appraisal fees and closing costs, making the loan more expensive initially.
As you can see, there are a few ways to sell and stay in your home — however, it’s important to find the right partner. When you co-invest with Balance, you can stay in your home, receive a lump sum of cash, and have the option to refinance into a traditional mortgage later and buy us out.
Contact us today to learn more.
Sources:
Rent-back agreement: What it means for buyer & seller? | Chase.com
Leaseback (or Sale-Leaseback): Definition, Benefits, and Examples | Investopedia
Home Reversion Plan: What it is and How it Works | NerdWallet UK
What You Should Know About Co-Owning a House | Mortgages and Advice | U.S. News
