A home equity agreement is a contract where an investor or investment company gives you a lump sum of cash in exchange for a percentage of your home's future value. You receive no monthly payments or stated interest rate, but the amount you owe at settlement can grow 19.5% to 22% a year in the early years, according to the Consumer Financial Protection Bureau.
The investor places a lien on your home and gets paid when you sell the property or at the end of the agreement term, typically 10 to 30 years. You must stay current on property taxes, homeowners' insurance, and home maintenance during this time.
Home equity agreement providers accept credit scores as low as 500 and offer investments up to $600,000. Unlike home equity loans or HELOCs, these agreements require no monthly payments and carry no stated interest rate. However, companies apply a downward risk adjustment that shrinks your share of gains, and the costs are not tax-deductible.
The main advantage is access to cash without monthly debt payments, making these agreements attractive to borrowers with lower credit scores or limited cash flow. The main drawback is the balloon payment due at sale or term end. If your home appreciates significantly, you owe the company its original investment plus a percentage of the increased value, which can be expensive. You also face upfront closing costs, which can amount to thousands of dollars. If you reach the end of the term without selling, you must pay the investor a large lump sum in cash or refinance through another loan.