Looking for ways to get equity out of your home without refinancing? Work with Truehold to get the financial freedom you are looking for.
Updated for accuracy and relevancy on July 27th, 2024
Accessing your home equity is like unlocking a treasure trove of financial possibilities. Whether you need to make repairs, invest in a business, or pay off debt, using home equity can be a smart and easy way to access funds.
The best part? You don’t need to refinance your mortgage to do it! Understanding how to get equity out of your home without refinancing requires an explanation of home equity, existing mortgage, debt consolidation, and other terms.
Discover six ways to tap into your home equity without refinancing: a home equity loan, HELOC, sell and stay transaction, secured loan, home equity investment, or reverse mortgage.
By choosing the option that best suits your needs, you can enjoy the feeling of cracking open your personal finance “piggy bank” and reaping the rewards of all your savings.
From the moment a buyer purchases a home and starts chipping away at their debt, they begin accruing equity in their home, first through their downpayment and then with monthly mortgage payments. Considering the average American monthly mortgage payment is $2,200 in 2024, equity can accumulate far more quickly than you realize.
Accessing this equity, however, is not as simple as making a withdrawal from an account. Instead, homeowners use their equity as collateral in a loan at much more favorable rates than available on an unsecured loan or credit card.
One of the most common ways to get equity out of your home is through a mortgage refinance, but this approach has its fair share of disadvantages and is far from the only option available to homeowners.
Refinancing refers to replacing your current mortgage with an entirely new contract, either with your current lender or after shopping around for a new one. There are several motivations for mortgage refinancing:
Of course, refinancing is not for every homeowner—and this strategy is not without its disadvantages. Before you commit, consider:
Yes, you can get equity out of your home without refinancing. Below we explore these six methods:
A home equity line of credit (HELOC) functions similarly to a credit card during the first ten years, or draw period. Borrowers have a credit limit and can repeatedly use any amount up to the limit, pay it back, and use it again. Unlike a credit card, however, HELOCs typically offer a much lower interest rate.
During the draw period, borrowers only need to make payments on interest, unless they want to pay down principal in order to re-borrow within their credit limit. After the draw period ends (usually 10 years) the repayment period begins, which means:
Closing costs for HELOCs usually average 1% of the credit limit, although they can range as high as 5% depending on your lender, loan amount, and state regulations.
Requirements: You’ll need at least 15% – 20% equity in your home, a 620 or higher credit score, verifiable income, and a debt-to-income (DTI) ratio of 43% or less.
Consider This Option If… You may need flexible funds available for an upcoming project or through the upcoming decade and can meet the credit score and other requirements. You’ll also need to afford monthly repayments (initially interest-only, and then full repayments once the draw period closes) on top of your current mortgage and other housing cost payments.
What is a home equity loan? Whereas a home equity line of credit allows borrowers to access available equity as needed, a home equity loan:
Home equity loans are often used for large home improvement projects like repairs or renovations and can be a valuable tool for homeowners looking to leverage their equity to increase their property value.
Just like HELOCs, home equity loans come with closing costs that can range from 2% – 5% but only hit about 1% of the loan total for most borrowers.
Requirements: Home equity loan requirements are the same as those for HELOCs: 15% – 20% home equity, a 620 or higher credit score, verifiable income, and a debt-to-income (DTI) ratio of 43% or less.
Consider This Option If… You know how much you need to borrow, can meet the credit score and other requirements, and can afford the monthly repayments on top of your current mortgage and other housing cost payments.
One of the best ways to get equity out of your home without refinancing is through what is known as a sell and stay transaction. In a sell and stay transaction, homeowners sell their home and cash out their home equity.
Then, rather than moving, homeowners continue to live in their home as renters. While equity debt works best when homeowners plan to put their equity back into their homes, a sell and stay transaction empowers homeowners to use their hard-earned equity to live life on their terms.
Truehold then covers property tax, property insurance, and essential repairs. This way, you can use your home equity to build wealth or fund other expenses.
Requirements: Given that a sell and stay transaction is not a debt product, homeowners are not barred from unlocking their equity by credit requirements. A sell and stay transaction with Truehold allows homeowners to unlock their equity, debt-free, regardless of the amount.
Consider This Option If… Homeowners looking to turn their home equity into financial freedom can benefit from a sell and stay transaction with Truehold. This is ideal for homeowners looking to reap all of the benefits of homeownership without the responsibility of essential repairs, property insurance, or property taxes.
Another refinancing option is a personal loan secured by your property deed or even by permanent fixtures in your home (e.g., cabinets, and vanities). While you’re still leveraging your property as loan collateral, the process is shorter—as quick as 24 hours—and requires less application and qualification steps. Plus, it’s available to homeowners with little equity.
Using a deed as collateral can secure a lower fixed interest rate than with an unsecured personal loan, but not as low as a home equity loan or HELOC. The biggest factor is your credit score, which is why there’s such a wide range of available rates, from 2.25% – 35.99%.
Some borrowers still see savings over home equity loans and HELOCs by opting for shorter terms, which equals less total interest paid than with the 10+ year terms common to home equity borrowing.
Requirements: Personal loans are available to most borrowers, but the lower your credit score, the higher the interest rate.
Consider This Option If… You need cash fast, have very low equity in your home, and have good to excellent credit.
A newer and less tested answer to how to take equity out of your home without refinancing is an HEI, also known as a home equity agreement (HEA) or home equity sharing agreement. When you consider how much homes appreciated in value over the last decade, it makes sense that investors want to dive into the residential real estate market at a deeper level than just buying up rental properties.
HEIs are a direct offering between investment companies and individual homeowners, where the investor purchases a minority stake in your property. That “minority” aspect is important—the investor has no right to set foot on your grounds, lease it out, or make decisions about what you do with your home, they’re simply purchasing a financial stake and expecting its value to grow over time.
HEIs function with these steps after you qualify with an investment company:
While it can sound like a great deal—easier qualification, no monthly payments, no interest, no loan impacting your credit history—it’s actually a money-loser for most homeowners. HEI companies often end up making double or even triple their original investment, which is significantly higher than a homeowner would pay in interest costs by borrowing over that same period.
Requirements: A minimum credit score of 500, with flexible-to-no income requirements. You need to own at least 30% equity, and there may be a minimum property value requirement. You cannot already have a loan with negative amortization, such as a reverse mortgage in place. You must also live in a state where one or more investment companies operate (currently available in 31 states plus Washington D.C.).
Consider This Option If… You can’t qualify for a home equity loan or HELOC, don’t want to take on new debt, or are unable to make monthly repayments on a loan. You’ll be able and willing to make a large lump-sum payout at the end of the contract, including the possibility of selling your house if you don’t have cash in hand.
If you're 62 or older and trying to figure out how to pull equity out of your house without refinancing, you can also consider a reverse mortgage.
Unlike traditional mortgages, reverse mortgages were originally designed to keep older adults in their homes and utilize their equity to generate monthly income. While they are indeed loans, they don’t typically become due until one of these outcomes occur:
Today, the vast majority of reverse mortgages are HECMs (home equity conversion mortgages) which are federally insured by the FHA (Federal Housing Administration) and available only from certain specialized lenders. Borrowers can choose how to receive funds:
Reverse mortgage loans are limited to 30% – 60% of the borrower’s primary residence equity according to a formula that calculates FHA lending limits, interest rate, borrower age, home value, and fund distribution method. As of June 2024, the average range for fixed-rate HECMs is 7.56% – 7.93%.
Requirements: You must be 62 or older, own at least 50% equity, have no federal debt delinquency, and have a two-year history of timely property payments. There is no credit score minimum requirement. You’re also required to keep your property well-maintained and stay current on property tax, homeowner’s insurance, mortgage insurance, and any HOA fees throughout the mortgage.
Consider This Option If… You cannot qualify for a home equity loan or line of credit and you are willing to do more research, including required counseling from a qualified reverse mortgage counseling agency. Reverse mortgages have the potential to be beneficial to a small subset of older adults who are cash-poor and house-rich and cannot meet their income or cash needs through other debt vehicles.
There are several ways to get equity out of your home from a lender without refinancing, each with its own unique set of benefits and disadvantages.
Taking advantage of your home equity can be a smart move, especially when it helps pay off high-interest debt, fund a new home, or finance your dreams. Before making any decisions, carefully consider your options and the specific benefits they offer.
The method you use to unlock your home equity will depend on your situation and goals, but the team at Truehold is here to answer your questions about how to make your home equity work for you with our sell and stay transaction.
To compare the benefits and fees associated with Truehold and a Home Equity Loan, you can use our home equity loan calculator. It provides a detailed analysis of how much equity you can get out of your home with each option, the fees involved, and more.
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