Point Review: Selling Your Home’s Equity vs. Getting A HELOC

What if you could sell shares in the equity of your home just like you can sell your shares in stocks like Apple or Google ?

Owning a home is supposed to be the ultimate asset for every American who buys one and owns equity in it. But what if, instead of getting a mortgage (i.e. taking on debt), you could sell a piece of the equity - just like a stock.

Well, that's what Point is doing, and it has some intriguing uses - including being used as a "bridge loan" to cover the costs for buying a new house, to paying off high interest debt.

Point is offering Home Equity Investment (HEI). It's an alternative to a HELOC.

Check out why we find Point and selling equity in your home so interesting.

How It Worked For Decades

Typically, until you have paid off your home completely, you cannot cash out on any of the equity in your home.

And yet, the dream of your home as an asset is the story that is sold to everyone who wants a slice of the American dream.

See a house you like.

Tell a bank you like the house,

Get the bank to give you money to buy the house.

And then pay the bank back every year for decades until you can realize the actual wealth on what should be your own home.

Want to enjoy some of that equity in your home? You have to refinance or take out a home equity line of credit.

The problem is that with both those options is that you will increase your debt.

Alternatively, what if you could receive a lump sum of money that is a portion of the equity in your home for much-needed financial expenses ?

That is what Point seeks to do and in today’s post we will go in-depth into how you can use Point to extract cash from the equity of your home without going into severe debt.

When Point allows you to extract cash from the equity of your home, you do not have to pay them back in monthly payments ever. However, you may choose to end the HEI anytime before the 30 years.

If your home appreciates, you will pay Point back the lump sum you were given as well as a certain percentage of the home’s current value. On the flip-side, if your home drops in value , Point will share in the loss with you.

Unlike a traditional home-equity line of credit, with Point, you get a lump sum of cash and you have no monthly payments.

When you sell shares in your home equity to Point, they do not become a co-owner of your property. They are simply becoming a partner in the home's change in value when you decide to end the agreement. They secure their interest in the property with a Deed of Trust just like a lender would.

Point currently operates in the following states: California, Washington, Oregon, Colorado, New Jersey, Massachusetts, Virginia, Washington DC, Florida, New York, Maryland, Pennsylvania, Illinois, Michigan, Minnesota, Arizona, North Carolina and Connecticut.

How Point Sells Equity In Your Home

To qualify for Point’s program, you should typically have 35% or more equity in your property (however, it can be as low as 20%).

If you do in fact have this level of equity, you can simply click on the link here, enter in your information, and answer a few pre-qualifying questions.

A pre-qualification decision will be provided within 5 minutes of you entering in your information.

If you pre-qualify, Point will give you an initial cash offer based on the information you entered into their system of between 5% and 22.5% of the value of your property.

You can sell equity in the following properties:

• Your primary residence
  
• Second home
  
• Condo
  
• Townhome
  
• Non-owner occupied single family home
  
• 1-4 Unit Multifamily
  

Do You Have To Pay Point Back?

Yes.

You will have to pay Point back but unlike traditional bank products, Point does not require any monthly payments. The Point HEI typically ends when:

As mentioned earlier, when you decide to end the Point HEI, you will pay Point the money you were given for the shares in your property and their prescribed percentage of the change in value of the home. This is how they potentially earn a profit.

Since Point is a Fintech company, it uses several algorithms which allow the company to know how much your home is likely to appreciate over the next 30 years.

How Much Will It Cost You?

There are a few fees associated with Point.

1. You will have to pay for the home visit with the appraiser. This will typically cost between $500 and $750.
2. You will pay an escrow fee between $450 and $650 according to Point’s website.
3. Point also collects a 3% transaction fee.

Note: The homeowner will not be responsible to pay any fees out of pocket. They will all be deducted from the wire prior to sending funds into your bank account.

How Would This Work In Real Life?

Let’s take an example.

Say for instance you currently have a $500,000 home with $250,000 in equity.

But there was a huge leak in your basement and it is now essential that you repair the leak as well as replace the washer and dryer in the basement.

Plus, you realize it is high time you actually built out and finished that basement.

If you qualify for Point, you sell shares in your home and receive between $35,000 and $125,000 (less the 3% transaction fee and closing costs) bringing the actual amount you would receive to between $32,500 and $120,000.

You now have cash that you can use to make those much needed repairs.

Great thing: you are not required to pay back immediately.

Every Point HEI has a 30 year term. So you technically have up to 30 years to pay Point back.

You can pay back the money at any point during this 30-year term without a penalty based on a current fair-market appraisal of your home.

If you sell your home during the term, Point is automatically paid from escrow whatever cash you received plus a percentage of the home’s appreciated value as determined by Point.

Point even has an online calculator that allows you to input the specifics of your homeowner situation so you can get a good idea of how much you will pay back at the end of your term.

Real Life Use Cases

We just talked about a basic use case above, where you could use equity in your home to pay for repairs (versus taking out a HELOC). But let's dive into two scenarios where Point could really make sense.

Using Equity Like A Bridge Loan

Let's say you're looking to buy a home in a hot housing market. You currently have a $500,000 mortgage, and a $1,000,000 home. You have about $50,000 in cash, but that's not enough to make a "good down payment" for your offer on your new home. Remember - it's a hot housing market.

You could take out a HELOC and get more cash out of your house - you have $500,000 in equity. But the problem? Taking out a HELOC will negatively impact your debt-to-income ratio, and could jeopardize getting your new mortgage.

That's where Point comes in. If you sell the equity in your home, you walk away with cash that you can use for the down payment on your next house. But since it's equity, it doesn't show up on your credit report, there are no monthly payments, and you don't impact your debt-to-income ratio. 

When you sell your old house, Point takes their equity back in escrow. This is a great scenario for using Point to sell equity.

Using Equity To Pay Down Debt

Another great use case for Point and selling equity in your home is to pay off high interest debt. For example, say you have high interest credit cards or student loans and you're looking for a way to get rid of them. Beyond saving interest payments, you want to improve your debt to income ratio (maybe to buy a future home) and improve your credit score (to qualify for better rates and terms).

Selling equity in your home is a great use case for this versus alternatives like refinancing the debt, or taking out a personal loan to pay of credit cards. 

With both refinancing and a personal loan, you still have the debt on your credit report, and you're still paying interest on the debt - likely high interest too even in the best cases. 

If you used equity in your home, you could literally be debt free (or at least consumer debt free). Once again, since equity doesn't show up on your credit report or require monthly payments, the savings in interest alone could be substantial. Plus, you'll likely boost your credit score significantly in the process.

Final Thoughts

Point has been around since 2014 and appears to be growing with each year.

If you’ve been denied a home equity line of credit from your bank and need to access a portion of your home equity, checking Point out might be a great alternative for you.

Do you have equity in your home? We'd love to hear your thoughts on in the comments below.