How Does Hometap Work? Pricing, Settlement, and Risks

Hometap works by paying you a lump sum of cash today in exchange for a percentage of your home’s value when you settle, which must happen within 10 years. There are no monthly payments and no interest. Instead, Hometap records a lien against your property and collects its share when you sell the home, refinance, or buy out the investment with other funds. What you ultimately owe depends on what your home is worth at settlement, not on what you received up front.

The Basic Trade

Hometap is a home equity investor, not a lender. You get a one-time cash payment. Hometap gets a contractual right to a share of your home’s value at settlement, whether that happens in year two or year ten. Nothing is due monthly, and there is no fixed repayment number written into the contract.

To secure its interest, Hometap records a mortgage or deed of trust in the public land records. You keep ownership, live in the home, maintain it, and make every decision about it. The lien stays attached until you settle, and future buyers and lenders will see it.

The X-for-Y Pricing Structure

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

Hometap also applies a discount to the appraised value before calculating the investment, so the starting number used in the math is lower than the actual appraisal. The Consumer Financial Protection Bureau has noted that home equity contracts generally use either a discounted initial value or a multiplier, and that under most home-price scenarios the effective cost can grow by as much as 22 percent per year in the early years of the contract.²

What That Looks Like in Dollars

Say your home is worth $500,000 and you take $50,000, which is 10 percent of the value. Hometap’s share is 15 percent of the home’s value at settlement. If the home is worth $600,000 when you settle, you owe Hometap $90,000. You received $50,000 and paid back $90,000, a $40,000 cost on top of what you got.

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

If Your Home Loses Value

Hometap’s payout is tied to actual market value at settlement. If the home depreciates, Hometap’s share shrinks with it, and you can end up owing less than you originally received. That shared downside is the main structural difference from a loan, where the principal is owed in full regardless of what the property is worth.

Who Qualifies

A minimum FICO score of 575. Homeowners with scores of 585 and above are evaluated on factors beyond credit alone.³
At least 25 percent equity in the property.³
A qualifying property type. Hometap primarily works with single-family homes, townhomes, and certain condominiums. Mobile homes, manufactured housing, and cooperatives are generally excluded.
A home located in a state where Hometap operates: Arizona, California, Florida, Indiana, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Virginia, and Washington, D.C.⁴
Current status on your mortgage, property taxes, homeowners insurance, and any HOA fees.

Hometap runs a title search to confirm there are no undisclosed liens or disputes, and asks for government-issued ID, current mortgage statements, and documentation of any junior liens.

What Comes Out of the Investment at Closing

A third-party appraiser inspects the home, and the resulting valuation drives the final offer. If you accept, you sign a memorandum of investment and a mortgage or deed of trust, both recorded in the public land records. Funds are usually wired within a few business days of signing.

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

How You Settle

The term is 10 years, and there is no prepayment penalty for settling earlier.⁵ You have three practical options:

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

A fresh appraisal determines the home’s value at settlement, and you typically pay for it. Once Hometap is paid, it files a release of lien in the local land records to clear the claim from your property.

What Happens at Year 10

If you have not settled by the end of the term, you must pay Hometap’s share at that point. The CFPB has warned that homeowners who cannot come up with the full settlement amount at the end of the term risk having to sell the home or face foreclosure.²

Events That Can Force Early Settlement

The 10-year clock is not the only thing that can force a payoff. The CFPB has identified several common triggers in home equity contracts:

Falling behind on your first-lien mortgage, which lets the equity investor demand immediate settlement.
Letting property taxes go unpaid, since this puts the investor’s interest at risk.
Allowing hazard insurance to lapse, which is typically treated as a breach.
Neglecting maintenance to the point that the home’s condition drops below the standard required by the contract, which can increase the amount owed 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.²

Refinancing Your Mortgage Gets Harder

Because Hometap holds a recorded lien, any new mortgage lender has to account for it. Hometap may agree to subordinate its lien so a new lender can take first position, but that is not guaranteed, and it can come with conditions and fees.

There is a more basic problem. If your home has appreciated, the amount needed to pay off Hometap has grown with it. A refinance that pays off both your existing mortgage and Hometap’s share means qualifying for a much larger loan, which can push your debt-to-income ratio past what lenders will approve. The CFPB has received consumer complaints about difficulties refinancing a first-lien mortgage because of an existing home equity contract.²

Taxes

The cash you receive up front is generally not treated as taxable income, because the arrangement is neither a loan nor a sale. Tax questions typically come up at settlement, where the amount paid to Hometap interacts with your capital gains calculation if you sell. 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 benefit on their share of the gain. The tax treatment of these contracts is not well settled in IRS guidance, so talking to a tax professional before signing or settling is a practical step.

What the CFPB Has Flagged

The Consumer Financial Protection Bureau has published a market overview highlighting several risks specific to home equity contracts. The bureau found these products are often more expensive than traditional home-secured financing, including in scenarios where the home loses value, and that non-standardized disclosures make it hard for consumers to understand the true cost or compare the product to alternatives.²

Consumer complaints reviewed by the CFPB described surprise at the size of repayment amounts, disputes over home valuations at origination and at repayment, and difficulty refinancing the first mortgage. Some homeowners reported that selling was the only realistic way to settle. The CFPB also noted that home equity contracts are currently not 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
4
Hometap. Home Equity Investments No Monthly Payments
5
Hometap. Settling Home Equity Investments with a Loan or HELOC