Financing an ADU With a Home Equity Sharing Company - Unison vs. Point vs. Noah vs. Hometap
Accessory dwellings, also known as granny flats, are being built at an increasing rate across the country as they provide an affordable way to add new units of housing for homeowners.
While you can pay for your ADU in cash, that option is not feasible for many people and the current, more traditional, forms of financing have some limitations - so a new financing product called home-equity sharing may make sense for some homeowners.
For individuals looking to finance their ADU with a lending product, a few options exist. Traditional borrowing options include:
Personal Loans
Construction Loans
Home Equity Loans
Home Equity Lines of Credit
Cash-out Refinancing
Each product has its merits however, there are a few drawbacks that may warrant an alternative financing option. These limitations include: high interest rates or an inability to receive financing due to bad credit, strict draw schedules, or minimum balance requirements.
Alternatively, individuals may be able to finance their ADU project with a newer co-investing financing option. Companies like Noah, Point, Unison, and Hometap offer individuals cash in exchange for a share of equity in their home’s future appreciation/depreciation or value. This structure allows individuals to receive up to $500,000 in cash, with no monthly payments or debt. Below we outline the differences between each company so you can determine if a home equity share is the right financing option for your ADU project, and which company best fits your needs.
Home Equity Sharing Company Comparison
When comparing home equity co-investors for your ADU project, you may want to consider factors such as:
Maximum Cash Amount - the maximum offer you receive depends on factors like the equity you have in your home and your borrower profile. Maximum offers can range from $300,000 - $500,000
Maximum Borrowing Period - at either 10 years or 30 years, this is the time that you have to either buy-out the company’s equity in your property or sell your home, in which case the company will receive their share of equity
Repayment Amount - in exchange for cash, your repayment amount is either:
Appreciation/Depreciation Based: Amount Borrowed + (% Share of Equity x Appreciation/ Depreciation) Example: You borrow $100,000 in exchange for 40% of your home’s value change. At the end of the term, your house increases in value by $50,000. Your repayment amount is $120,000 [$100,000 + (40% x $50,000)]
Total Home Value: % Share of Equity x Total Home Value Example: You borrow $100,000 in exchange for 17% equity in your home. At the end of the term, your home is worth $1,000,000. Your repayment amount is $170,000 ($1,000,000 x 17%)
Service Area
Eligibility Factors - individual borrower profiles will affect the amount of money you are able to receive but each company has baseline requirements that must be met such as minimum property values and minimum credit scores
Customer Reviews
Review of Noah vs. Point vs. Unison vs. Hometap
| Noah | Point | Unison | Hometap | |
|---|---|---|---|---|
| Maximum Cash Amount | $350,000 (maximum offer is often 20% of your home’s value) | $350,000 (maximum offer is often 20% of your home’s value) | $500,000 (maximum offer is 17.5% of your home’s value) | $300,000 (maximum offer is 30% of your home’s value) |
| Maximum Borrowing Period | 10 Years | 30 Years | 30 Years | 10 Years |
| Repayment Amount | Amount Borrowed + (% Equity x Appreciation/Depreciation) | Amount Borrowed + (% Equity x Appreciation/Depreciation) | Amount Borrowed + (% Equity x Appreciation/Depreciation) | % Equity x Total Home Value |
| Service Area | Select areas of CA, OR, WA, UT, CO | Select cities in CA, WA, OR, CO. NJ, MA, VA, D.C., FL, NY, MD, PA,IL, MI, MN, AZ, NC and CT, | AZ, CA, CO, CT, DE, FL, GE, IL, IN, KS, KY, MD, MA, MI, MN, MO, NV, NJ, NM, NY, NC, OH, OR, PA, RI, SC, TN, UT, VA, WA, D.C., WI | CA, MA, NY, VA, NC, FL, OR, MD |
| Eligibility | - Combined property value (home + land) must be greater than $300,000 -Credit score of at least 625 |
- Combined property value (home + land) must be greater than $200,000 -Credit score of at least 500 |
- Combined property value (home + land) must be greater than $30,000 -Credit score of at least 680 |
- Must have at least 25% equity in your home -Credit score of at least 600 |
| Fees | $2,000 or 3% of the financing amount, whichever is greater | 3% - 5% of the financing amount, depending on your borrower profile | 2.5% of the financing amount | 3% of the financing amount |
| Reviews* | 4.5 Stars | 4.5 Stars | 2.5 Stars | 4.8 Stars |
*Reviews are based on prior customer reviews and sourced on May 1, 2020. Reviews for Noah, Point, and Hometap are based on consumer reviews from Trustpilot and Unison’s score is based on customer reviews from Yelp.
** (Accurate as of May, 2020)
What Are the Benefits of Financing an ADU Project With a Home Equity Sharing Agreement?
There are no monthly payments
You may be able to access a larger loan than you could from more traditional financing methods
Your interests are aligned with with your co-investor’s - your repayment amount is directly tied to the increase/decrease in your home’s value
You plan on selling your home within the term - in this case your payment is deducted from the proceeds of your home’s sale
Borrowers undergoing eligible renovation projects may be able to adjust their home’s value with Unison and Hometap
What Are the Drawbacks of Financing an ADU Project With a Home Equity Sharing Agreement?
Your home significantly increases in value - in this case you will likely pay more than money borrowed through a traditional financing option
You don’t plan on selling your home by the end of the borrowing term - in this case you are responsible for buying-out your co-investor’s equity in your home
You have access to financing with low interest rates and high lending amounts
For a more in-depth description of each company and their product we have created company specific reviews:
Each review includes information helpful for determining their suitability for financing your ADU such as key characteristic and cost comparisons to traditional financing options.