The Million Dollar Question: Home Equity Loans vs. Equity Sharing Agreements vs. Selling Property Outright
What's the Best Way to Tap Into Your Home Equity?
When it comes time to sell your home, you have a few different options for how to best profit from the equity you've built up. You can take out a home equity loan, enter into an equity sharing agreement, or simply sell the property outright. Here's a look at the pros and cons of each option to help you decide which is best for you.
Home Equity Loan
A home equity loan is a second mortgage on your home. You can borrow up to 80% of the appraised value of your home, minus any outstanding mortgages or home equity lines of credit. Home equity loans typically have a fixed interest rate, meaning your monthly payments will stay the same for the life of the loan. This makes home equity loans a good option if you need a lump sum of cash for a one-time expense.
Equity Sharing Agreement
An equity sharing agreement is a contract between you and another party, typically an investor, in which you agree to sell a portion of your future equity in the property for a lump sum of cash up front. The investor then becomes a partial owner of the property. When you eventually sell the property, the investor is entitled to a portion of the proceeds. Equity sharing agreements are a good option if you need cash now but don't want to take on additional debt.
Selling Property Outright
Selling your property outright is the most straightforward way to tap into your home equity. You simply find a buyer and agree on a sales price. The buyer then pays you the agreed-upon amount, and you sign over the deed to the property. This option is best if you're looking to move anyway and don't want the hassle of making monthly payments on a loan or dealing with an investor.
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