What is Home Equity Sharing? The equity sharing approach to buying a home has been around a long time. But recently it has become more popular due to rising mortgage rates and increasing real estate prices. Simply put, home equity sharing makes it possible for you to buy more home than you can afford today, by sharing the purchase of a home with an equity partner.

Typically, when you buy a home, you put some money down. The rest of the payment for the home is provided by a bank, from which you take out a mortgage. With equity sharing, part of the down payment is provided by an equity partner. Much like venture investors buy part of a startup in exchange for equity in that startup, equity partners buy part of your home in exchange for a piece of the equity. That means that if the value of your home increases, and you sell, the equity party takes part of the upside (relative to the amount of equity they own).

The devil is in the details of course. Depending on the arrangement, you may have to refinance or sell after a particular period of time, say three, five, or ten years. But there are many options available depending on the equity partner.

The outcome of your equity sharing arrangement often depends on who you are sharing the equity with. One common arrangement is to share the purchase with a family member, relative or close friend, in other words, someone who you know and who would be interested in participating and helping you out in the purchase of your new home. There are also services available on the web to help you find equity sharing partners, although these often cost money and you won't know your partner as well. But that might be a good thing since it could result in more of a business than personal relationship.

Make sure you read the fine print whenever you enter into an agreement. Understand your obligations as well as those of the equity partner to find out if a home equity partnership arrangement is right for you.