There are a few different ways to pay for solar: you can pay with cash, finance solar, or lease your system. When it comes to financing solar, there are also several options, including solar loans, home equity loans, and alternative options like Hometap. We sat down with Hometap to learn more about their home equity investment offering that provides another way to pay for various energy-efficient home improvements, including solar panels, heat pumps, and more.
Hometap is an EnergySage partner; however, we create our articles independently from any partnership arrangement to provide you with helpful and unbiased resources when researching, shopping for, and using clean energy solutions.
[ES] Tell us more about Hometap – when and why were you founded?
[HT] We were founded in 2017 with the mission of making homeownership more accessible and less stressful. Our origin story dates back to when Jeffrey Glass, our CEO, was growing up and witnessed many of his friends' parents — who were homeowners — worrying about money. The "house-rich, cash-poor" sentiment he observed stuck with him, so he created a solution that allowed homeowners to fund their financial goals and still have a life through home equity investments by co-founding Hometap.
[ES] What makes Hometap different from other solar financing options?
[HT] Unlike a loan, a home equity investment from Hometap has no interest and no monthly payments, making it a great option for anyone that wants to avoid incurring debt. Home equity investments provide homeowners with debt-free cash in exchange for a percentage of their home's future value.
Often, our customers compare us against alternatives such as a home equity loan, HELOC, cash-out refinance, or solar loan. While some of these also leverage home equity, we're the only option that doesn't involve making an additional monthly payment, and there's no guaranteed return to Hometap on the investment. Also, since an investment isn't a debt product like a regular loan, it also won't impact your debt-to-income ratio.
There are no restrictions on how the funds are used, so homeowners can use a Hometap Investment to fund one or more projects — including the addition of solar, along with a battery or heat pumps, using the same Hometap Investment.
[ES] Tell us about the options. What term lengths and rates do you offer? Are there different ways a homeowner can work with Hometap?
[HT] A home equity investment from Hometap allows homeowners to access up to 30 percent of their home value in cash in exchange for a percentage of the home's future value. The length of the Investment is ten years, at which point the homeowner can settle through the proceeds of the sale of the home, or through savings, refinancing, or a loan.
Additionally, we're very transparent about our fees so that all costs are clear to homeowners— you'll know the exact percentages related to what we're providing as an investment and the equity payment to settle the investment after ten years. The amount paid to us to settle the investment may vary based on the home's exact value at the settlement date, but it will be a set percentage, which won't change.
Hometap charges a fee equal to three percent of the investment amount to cover administrative and management costs and there are no other Hometap fees. However, there will be appraisal costs and other third-party costs associated with the signing such as escrow, attorney or notary, and document recording. Costs like an appraisal, title charges, and government recordings can vary by state. Closing costs are deducted from the homeowner's investment total, though, so there are no out-of-pocket expenses and no monthly payments.
[ES] Who can and should look into using Hometap?
[HT] We always encourage homeowners to do their homework before choosing the best financing option for them and their goals. We offer a different approach to funding solar and other renovation costs. If the homeowner has a minimum of 25 percent equity in their home and is looking for a debt-free way to tap into their equity, this may be a good option to consider.
There are some other requirements, including that the homeowner must live in a state where we are currently operational (we're currently in 18 states): Arizona, California, Florida, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Virginia, and Washington. We also look for a credit score above 600 (and, at minimum, a 500 FICO Score).
$600,000 is the maximum amount that we can invest, and the available amount will also depend on the homeowner's home value and equity percentage.
[ES] How does the application process work and how long does it usually take to finalize everything?
[HT] We can make an investment in as little as three weeks. This timing ultimately depends on a few factors, including if there are additional liens on the property or issues with getting paperwork confirmed. The homeowner will need to submit an investment estimate on our website and then we'll have one of our investment managers contact them if we think an investment is possible. From there, we'll confirm the details, they'll submit their application, and we'll coordinate the process to get everything signed. Before signing, we'll conduct a virtual or in-person appraisal to determine the home's current market value.
[ES] I'm a homeowner interested in Hometap, but I don't want to lose too much equity — is there a limit on the equity Hometap can get from my home?
[HT] Yes, we have what we call a "Hometap Cap," which limits our annual rate of return to 20%. This helps ensure that you, as the homeowner, reap the benefits of your home's appreciation.
[ES] Can homeowners still claim the solar tax credit when getting a Hometap investment?
[HT] Yes, you will own your solar system and are just using your Hometap investment to pay for it. So, you still qualify for any local and federal incentives, including the solar investment tax credit (ITC). That said, you'll still need to consult your CPA or tax advisor to see if you can qualify for the ITC based on your personal tax situation since it's a credit, not a refund. Owning your solar system is frequently the most efficient way to go solar, providing the highest lifetime return on investment (ROI) and usually an improvement on your home's value.
[ES] Why do you think a homeowner should choose Hometap instead of another solar financing option?
[HT] Ultimately, it depends on your individual financial situation and goals. If you have equity in your home and want to avoid having a monthly payment, Hometap may be a great option to look into for adding a solar system to your home. We provide an alternative to traditional monthly-payment-based financing options without the interest or monthly payments of other home equity financing.
It's also important to determine if our settlement options fit into your plan. Hometap investments have a 10-year effective period, and you may settle your investment within that time through the sale of your home, a refinance, a loan, or with savings.