Shared Equity Agreements: A Shortcut Into Homeownership?

If you’re a first-time buyer, you already know one of the hardest parts of buying a home is saving for the down payment.

With rents high, groceries and everyday expenses rising, and mortgage rates stretching budgets, putting away hundreds (let alone thousands) each month can feel impossible. For many buyers, reaching a 20% down payment could take years. And by then, home prices may have gone up even more.

This is where a shared equity agreement, also called a home equity investment (HEI), might help. It’s a different kind of financing that can get you into a home sooner, even if you don’t have the full down payment saved.

How a shared equity agreement works

With a home equity investment, you bring as much as you can for a down payment, and an investor provides the rest. In exchange, the investor gets a share of your home’s future appreciation. You don’t make monthly payments to them, and you don’t pay interest like you would on a loan. Instead, you settle up when you sell your home (or after a set number of years, depending on the agreement).

Here’s a simple example:

• You want to buy a $300,000 home.
• You’ve saved $45,000, which is 15% down.
• An investor contributes another $15,000 so you can reach 20% and avoid PMI.
• Ten years later, you sell the home for $400,000.
• The home appreciated by $100,000, and the investor is entitled to 15% of that growth ($15,000) plus their original $15,000.
• You keep the rest.

In this case, the HEI gave you the ability to buy sooner and skip mortgage insurance. Without it, you might have spent years saving that extra $15,000 while home prices kept rising.

Why this matters in today’s market

Mortgage rates are still high compared to just a few years ago, which makes monthly payments bigger. At the same time, home prices haven’t dropped enough to make saving easier. That’s why many renters feel stuck: saving for a down payment is slow, and waiting can mean falling further behind as prices climb.

An HEI can break that cycle by letting you buy a home sooner. Instead of watching from the sidelines while prices rise, you start building equity right away. Even if you eventually share some appreciation with an investor, you’ll still benefit from owning instead of renting.

Shared equity agreement benefits

Shared equity agreements come with clear advantages that may be especially helpful for first-time buyers trying to get into the market now.

• Enter the market sooner: You don’t have to wait years to save every dollar of a down payment.
• Avoid PMI: With investor help, you may reach the 20% threshold and save on monthly mortgage insurance.
• No monthly payments to the investor: You only settle when you sell, which keeps your budget manageable.

Shared equity agreement trade-offs

Of course, these agreements aren’t perfect. Alongside the benefits, there are drawbacks that you’ll need to weigh carefully before committing.

• You give up future equity: When the home grows in value, the investor takes their cut. In a hot market, that payout can be far larger than the cash you received upfront.
• Contract restrictions: Some agreements limit when you can sell or require investor approval for major renovations.
• Smaller long-term wealth: By giving up a slice of appreciation, you reduce the wealth homeownership typically builds over time.

Is an HEI right for you?

If saving for a down payment feels out of reach, a shared equity agreement could be the bridge you need. It won’t be the cheapest option in the long run, but it may be the one that gets you into a home while you’re still young enough to enjoy it, and before prices climb further out of reach.

Before deciding, compare it with FHA loans, look into down payment assistance programs, and weigh the option of simply waiting. But don’t dismiss it. For some first-time buyers, an HEI really can be the shortcut that makes homeownership possible.