About Unlock Home Equity Loans

Unlock Technologies, headquartered in New York, specializes in home equity investment rather than serving as a traditional home equity lender that extends credit lines or loans. Established in 2020, Unlock Technologies introduces a unique financial offering known as Home Equity Agreements (HEAs), which serve as an alternative to traditional Home Equity Lines of Credit (HELOCs) and home equity loans.

To qualify for an HEA with Unlock, individuals must meet specific criteria, including having a minimum FICO score of 500 and a minimum of 30% equity in their homes. The amount of cash available through an HEA is contingent upon the current valuation of your home, with potential disbursements reaching up to $500,000. Their services are currently accessible in 15 states, which include California, Colorado, Florida, and North Carolina.

How does Unlock HEA work?

With a Home Equity Agreement (HEA) from Unlock Technologies, you essentially sell a portion of your future home equity to Unlock in exchange for immediate cash. This cash can be used for various purposes, similar to how you might utilize funds from a traditional home equity loan, a Home Equity Line of Credit, or a cash-out refinance.

You are given a grace period of up to 10 years to repay the HEA. The repayment process for the HEA involves two primary options: either selling your home or repurchasing Unlock’s interest in your equity. The latter can be funded by refinancing your existing mortgage or taking out another loan secured by your property. When you decide to terminate the agreement, your repayment is determined based on your home’s appraised value at that time, and you have the flexibility to end the agreement at any point. During this period, you won’t have any ongoing monthly payments, and technically, interest won’t accrue.

Unlock Technologies’ home equity agreement shares some similarities with a reverse mortgage. With an HEA, you receive a lump-sum payout based on your current equity level, and this amount doesn’t require repayment until you sell your home.

However, the key distinction lies in the repayment structure. When you eventually sell your home, you’ll owe Unlock a percentage of your home’s appreciated value, which is different from a reverse mortgage. For instance, you might receive 10 percent of your home’s equity upfront, which you can use as you see fit, in exchange for granting Unlock a 20 percent share in the home’s future appreciation. Unlock also provides the option for you to gradually buy back the company’s stake in your home over time.

Loan Products

Unlock Technologies specializes in Home Equity Agreements (HEAs) as opposed to offering traditional Home Equity Lines of Credit (HELOCs) or loans. In essence, the company provides you with a sum of money, referred to as an investment payment, in exchange for a predetermined portion of your home’s equity up to a maximum of 10 years into the future. You maintain the flexibility to buy back the company’s stake in your home at any point during this term, or you can opt to sell your home whenever you choose, and at that time, settle your obligation to the company.

A key advantage of an HEA over a HELOC or equity loan is the absence of monthly payments or interest to be concerned about during the agreed-upon term.

Qualification Requirements

To qualify for an Unlock investment, there are several fundamental criteria to meet. First, the equity involved must be associated with your primary residence. Additionally, a minimum FICO credit score of 500 is required, along with maintaining a loan-to-value ratio of 80 percent. It’s important to understand that the term “loan-to-value” can be somewhat misleading because the home equity agreement does not operate like a traditional loan. Lastly, the minimum investment amount you can request is $30,000.

There are no specific age or income requirements for eligibility, but certain financial factors are considered. Your debt-to-income (DTI) ratio should not exceed 45 percent. Additionally, your financial history should not include a bankruptcy, foreclosure (including deed-in-lieu), or short sale within the past five years. You should also have no more than three months of missed mortgage payments within the past two years or more than four months of missed payments within the past three years.

If there are other liens on the property, it may be necessary to settle them (pay them off) before Unlock can proceed with an investment. It’s also essential to keep up with your homeowner’s insurance and property taxes and continue paying your first mortgage, if applicable.

Terms, Fees, and Other Conditions

Unlock provides Home Equity Agreements (HEAs) with a maximum term of up to 10 years, but there is no minimum term requirement. If you wish to buy out Unlock’s equity stake in your home, you are required to provide a minimum of 60 days’ notice. Additionally, it’s crucial to promptly inform Unlock if you decide to sell your home.

Origination Fee

Unlock applies an origination fee, which amounts to 4.9 percent of the lump sum you receive. Additionally, you are accountable for covering any expenses linked to third-party services, including the cost of a home appraisal. Unlock provides an estimate for these third-party service fees, which is approximately $2,000.

In the event that you decide to refinance your first mortgage or acquire another loan secured by your home, Unlock may impose an administration fee and any associated recording fees.

Unlock Share

The Unlock Share fee is a crucial cost to grasp before entering into an agreement. This fee represents the percentage of your home’s future value that you’ll owe to Unlock when you conclude the Home Equity Agreement. It’s important to note that this fee is applicable regardless of whether your home’s value appreciates or depreciates during the agreement period.

The initial cash amount you receive directly affects the size of the Unlock Share you’ll have to pay later on. Given that Unlock provides its clients with an upfront payout ranging from 5% to 35% of their home equity, the maximum equity share you might owe to Unlock at the conclusion of the agreement can vary from 10% to 70%.

Annualized Cost Limit

The amount you ultimately owe for your Unlock Share is capped by an annualized cost limit of 19.9%. This limit represents the maximum annual cost associated with your Home Equity Agreement (HEA), expressed as a percentage. Think of it as akin to an interest rate that you might encounter with a loan. This 19.9% limit ensures that the cost of your HEA remains within a certain threshold each year.

Appraisal

Unlock determines both your initial home value, which impacts the amount of cash you can receive, and your final home value, which affects your repayment amount, through a property appraisal. The appraisal process follows the same procedure utilized by mortgage lenders, involving the engagement of an independent third party to conduct the appraisal.

In cases where there is a disagreement between you and Unlock regarding the appraised value of the home, the party with the dissenting opinion has the option to request and bear the cost of, either a reconsideration or a new appraisal. This process typically entails an expense ranging from $400 to $800.

Maintenance Adjustment

You might be responsible for covering the cost of a maintenance adjustment if your home’s condition has deteriorated since the start of the Home Equity Agreement (HEA). In such cases, Unlock will engage independent third parties to assess and estimate the expenses required for repairing the damage. Your financial obligation to Unlock will be limited to a percentage of this maintenance cost, as the company shares in a portion of the overall change in your home’s value.

Improvement Adjustment

If you’ve made enhancements or improvements to your home during the course of the Home Equity Agreement, you have the option to request an improvement adjustment when concluding the agreement. In this process, you’ll be required to furnish the appraiser and inspector with comprehensive photos showcasing the “before” condition of the improved area. Additionally, you must provide any pertinent documents, such as building permits, plans, or other forms of evidence related to the work you’ve undertaken.

If experts establish that your home improvements have enhanced your property’s value by $50,000, this sum is deducted from your home’s final value. In essence, Unlock does not receive any benefit from the increased value of your improvements; rather, their share is based solely on the change in your home’s market value.

Maximum Cash Available

The amount of cash you can access through an Unlock Home Equity Agreement can range from 5% to 35% of your equity. The specific cash amount you qualify for is contingent upon various factors including your property’s characteristics, location, whether it’s your primary residence or not, your credit history, and the outstanding mortgage debt on your home.

Maximum Mortgage Debt

It’s important to note that the total debt secured by your primary residence, including the estimated equity value you’ll owe Unlock at the conclusion of the agreement, should not surpass 80% to 85% of your home’s value at the time you enter into the agreement. For second homes and rental properties, this total debt limit should not exceed 75% to 80%, although these percentages can vary based on individual circumstances, as outlined in Unlock’s product guide.

The percentage referred to as the “Total Home Finance Limit,” as defined by Unlock, is contingent on the level of risk associated with your specific situation. Much like mortgage lenders, Unlock assesses risk by taking into account factors like credit score and property occupancy. This limit is akin to the maximum combined loan-to-value (LTV) ratio permitted by mortgage lenders for Home Equity Lines of Credit (HELOCs), home equity loans, and cash-out refinances.

Customer Support

Unlock has a phone and email channel available for customer concerns and inquiries. You can call their hotline at 1-800-560-3450 or send an email to hello@unlock.com.

Final Thoughts

Unlock might be a suitable choice if you have impaired credit and limited available funds but require a substantial sum of money for an expense that can enhance your long-term financial stability. Additionally, it could be a viable option if you plan to relocate within the next decade, which aligns with the maximum term length of their HEAs. Repayment options include either selling your home or buying out Unlock’s equity stake.