How Does Hometap Work? Pricing, Settlement, and Risks

Hometap works by giving you a lump sum of cash today in exchange for a percentage of your home’s future value, with no monthly payments and no interest, which you settle within 10 years by selling the home, refinancing, or buying Hometap’s share out with other funds. It is a home equity investment, not a loan, and the amount you eventually owe depends on what your home is worth at settlement.

The Basic Deal

Hometap is a home equity investor. You receive a one-time payment. In return, Hometap gets a contractual right to a share of your home’s value on the day you settle, whether that comes two years in or at the end of the full 10-year term. There is no monthly bill, no interest, and no fixed payoff figure.

To secure its position, Hometap records a lien against your property in the form of a mortgage or deed of trust. That filing appears in public land records and puts future lenders and buyers on notice that Hometap has a claim on part of the home’s value. You keep full ownership during the term. You live in the house, maintain it, and make every decision about it. The lien stays attached until you pay Hometap out.

How Hometap Prices the Investment

Hometap uses what it calls an “X-for-Y” structure. You receive cash equal to X percent of your home’s current value, and Hometap takes a Y percent share of the home’s future value. Y is always larger than X. Access 10 percent of your equity and Hometap’s share of future value is roughly 15 percent. Access 15 percent and the share climbs to about 22.5 percent. The maximum you can pull out is 24.99 percent of your equity.¹

Hometap also applies a discount to your home’s appraised value before running the calculation. That adjusted starting value is lower than the actual appraisal, which raises the effective share Hometap collects when the home appreciates. The Consumer Financial Protection Bureau has observed that home equity contracts generally use either a discounted initial value or a multiplier, and that the effective cost can grow by as much as 22 percent per year in the early years of the contract under most home-price scenarios.²

A Real-Dollar Example

Say your home is worth $500,000 and you receive $50,000, or 10 percent of its value. Hometap’s share is 15 percent of the future value. If the home is worth $600,000 when you settle, you owe Hometap $90,000. You received $50,000 and paid back $90,000. The extra $40,000 is the cost of the arrangement, in exchange for no monthly payments along the way.

The CFPB found that costs in that 22 percent annual range are substantially higher than the interest rates on most home-secured credit, though somewhat lower than typical credit card rates. Over longer terms, home equity contracts still tend to be more expensive than home equity loans or lines of credit.²

What Happens if Your Home Loses Value

If the home depreciates during the term, Hometap’s share shrinks with it. Payout is tied to actual market value at settlement, so a decline means you owe less than the original cash amount. That shared downside is the main structural difference from a loan, where the principal stays owed no matter what the property does.

Who Qualifies

Hometap sets several thresholds before it will invest.

Credit score: the minimum FICO is 575, and applicants above 585 are evaluated on more than credit alone.³
Home equity: you need at least 25 percent equity in the property.³
Property type: single-family homes, townhomes, and some condominiums qualify. Mobile homes, manufactured housing, and cooperatives are generally excluded.
Location: Hometap operates in a set list of states plus Washington, D.C., which is worth confirming directly with Hometap because availability changes.⁴
Property expenses: you must be current on mortgage payments, property taxes, homeowners insurance, and any HOA fees.

Hometap also runs a title search to confirm there are no undisclosed liens or disputes on the property. Expect to provide government-issued identification, mortgage statements, and documentation of any junior liens.

The Application and Closing Steps

You start with an online application covering your home and finances. If you clear initial screening, Hometap sends a third-party appraiser to inspect the property and produce a formal valuation. Based on that appraisal, Hometap makes a final offer stating the cash you would receive and the percentage of future value Hometap would hold.

If you accept, you sign a memorandum of investment along with a mortgage or deed of trust. Both get recorded in public land records. A title insurance policy is reviewed to protect Hometap’s claim. Funds arrive by wire within a few business days after signing.

Hometap charges roughly 3 percent of the investment amount as a fee. On top of that, you pay standard third-party closing costs: appraisal, title search, title insurance, government recording fees, and escrow or attorney charges. These come out of the investment proceeds, so the cash you actually receive is less than the headline number. On a $50,000 investment, budget about $1,500 for Hometap’s fee plus several hundred to over a thousand dollars in third-party costs depending on location.

Settling Within 10 Years

A Hometap investment has a 10-year term, and you can settle at any point during that window without a prepayment penalty.⁵ There are three ways to do it:

Sell the home and pay Hometap its share from the closing proceeds.
Buy out Hometap’s share using savings, a home equity loan, or a cash-out refinance.
Refinance into a new first mortgage large enough to pay off your existing loan and Hometap at the same time.

Settlement requires a fresh appraisal to set current fair market value, and the homeowner typically pays for that appraisal. Once Hometap is paid, it files a release of lien in local land records, clearing the claim from the property.

If you reach the end of the 10 years without settling, the full share comes due. Homeowners who cannot produce the money through savings, refinancing, or selling other assets may end up having to sell the home. The CFPB has warned that homeowners who cannot pay the full settlement amount at the end of the term risk having to sell or face foreclosure.²

Events That Can Force Early Settlement

The 10-year clock is not the only thing that can trigger a payoff. According to the CFPB, common triggers under home equity contracts include:

Defaulting on your primary mortgage, which can prompt the investor to demand immediate settlement.
Failing to pay property taxes, which puts the investor’s interest at risk and can trigger default provisions.
Letting hazard insurance lapse, which is typically treated as a breach of the agreement.
Neglecting property maintenance, which under some contracts can increase the settlement amount at payoff.

Because Hometap holds a recorded mortgage or deed of trust, it has the legal ability to pursue foreclosure if you default and cannot settle. A homeowner who hits a triggering event without the cash to pay is in the same position as one who reaches year 10 without a plan.²

Refinancing While a Hometap Lien Is in Place

Refinancing your first mortgage while a Hometap investment is active is often harder than homeowners expect. Any new lender has to account for Hometap’s recorded lien. Hometap may agree to subordinate that lien so the new lender takes priority, but subordination is not guaranteed and can carry conditions and fees.

There is a second obstacle. If your home has appreciated, the amount you owe Hometap has grown too. Refinancing and paying Hometap off in one transaction means qualifying for a loan big enough to cover both the existing mortgage balance and Hometap’s share, which can push your debt-to-income ratio above what lenders will approve. The CFPB has received consumer complaints about difficulties refinancing a first-lien mortgage due to the existence of a home equity contract.²

Tax Treatment

The upfront cash is generally not treated as taxable income, because the arrangement is neither a loan nor a sale. Tax questions tend to show up at settlement, when the home’s appreciation is reported for capital gains purposes. Homeowners who qualify for the primary residence capital gains exclusion, up to $250,000 for single filers or $500,000 for married couples filing jointly, may still be able to apply it to their share of the gain. The interaction between a home equity contract and capital gains reporting can be complicated, and IRS guidance on these arrangements is not well settled, so talk to a tax professional before signing or settling.

What Regulators Have Flagged

The Consumer Financial Protection Bureau has published a market overview identifying several risks that apply to home equity contracts like Hometap’s. The bureau found the products are often more expensive than traditional home-secured financing, even when the home loses value, and that non-standardized disclosures make it hard for consumers to understand the true cost or compare against alternatives.²

In consumer complaints reviewed by the CFPB, homeowners reported surprise at the size of repayment amounts, frustration with home valuations they considered too low at origination or too high at repayment, and trouble refinancing their primary mortgage. Some said selling the home felt like their only realistic option to pay off the contract. The CFPB also noted that home equity contracts are not currently subject to many of the consumer protection requirements that apply to traditional mortgages and home equity loans.²

1
Hometap. How Hometap Home Equity Investment Pricing Model Works
2
Consumer Financial Protection Bureau. Issue Spotlight: Home Equity Contracts: Market Overview
3
Hometap. Can You Get a Home Equity Loan with Bad Credit
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Hometap. Home Equity Investments No Monthly Payments
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Hometap. Settling Home Equity Investments with a Loan or HELOC