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.
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 unless you sell your house within 10 years or decide to buy back your shares. 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 take a loss.
Unlike the traditional home-equity line of credit you can take from your bank where you have to start paying back immediately, receiving a lump sum of cash from Point does not require you to pay back immediately.
When you sell shares in your home equity to Point, they actually become a “co-homeowner” with you except they do not move in and are not even added to the title of your probably.
So far, Point operates in select areas in California, Oregon, Washington, Colorado and Massachussets.
How Point Sells Equity In Your Home
To qualify for Point’s program, you first and foremost have to have equity in your home.
If you do in fact have equity, you can then go over to Point’s website, enter in your information as well as 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 a initial cash offer just based on the information you entered into their system of between 5-10% of the current equity in your home.
So, if you currently have $500,000 equity in your home, you could receive up to $50,000 in cash from Point.
Next, an appraiser will have to come over to your home to verify the value of your home. If everything checks out, you will receive your cash from Point within four business days as an electronic payment into your bank account.
Do You Have To Pay Point Back?
You will have to pay Point back but unlike traditional bank products, Point promises not to take any monthly payments from you until:
As mentioned earlier, when you sell your home, you will pay back Point the money you were given for shares in your home and up to 3% of the appreciated value of the home - that is how they make money.
Since Point is a Fintech company, it uses several algorithms that allows the company to know how much your home is likely to appreciate over the next 10 years.
It is likely that you will be denied if you don’t have enough equity in your home or if per their algorithm, Point decides that your home is less likely to appreciate in the next one to ten years.
How Much Will It Cost You?
There are a few fees associated with Point.
- You will have to pay for the home visit with the appraiser. This costs between $500 and $1000.
- You will pay an escrow fee for between $450 and $650 according to Point’s website.
- Point also collects a 3% processing fee for transactions (taken when the electronic transfer from Point is made into your bank account)
Thus, there will be at the very least a $950 upfront cost when it comes to working with Point. And it's important to remember that these fees are comparable to what you'd pay to take out a HELOC as well.
I can see how this could deter anyone from continuing with the process of cashing out with Point but it could be well-worth the cost for you if you own a substantial amount of equity in your home and could really do with the cash.
How Would This Work In Real Life?
Let’s take an example.
Say for instance you currently have $425,000 equity in your home.
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 $21,250 and $42,500 (less 3% transaction fees bringing the actual amounts you will receive to between $20, 612.50 and $41,225).
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 Homeowner Agreement comes with a 10-year term. So you technically have up to 10 years to pay Point back.
You can pay back the money at any point during this 10-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.
Point has been around for two years now and from their press releases appear to be growing with each year.
If you’ve been denied a home equity line of credit from your bank and really do need the cash to meet a dire financial need, checking Point out might be an alternative for you.
Yes, there is an upfront cost but if you play it all the right way, you can end up benefiting massively from selling shares in the equity of your home.
Do you have equity in your home? We'd love to hear your thoughts on in the comments below.
Point: Selling Equity In Your Home
- Rates And Fees - 80
- Products and Services - 100
- Ease Of Use - 90
- Customer Service - 90
Point is a unique FinTech company that allows you to sell equity in your home to investors.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.