Buying and selling a home is a process that is full of friction. For some buyers financing is a roadblock due to the 20% down payments most banks require. This is especially a problem in some of the most expensive cities in the US. For sellers the process is also frustrating. Even if you’re in a hot market, the process can be delayed by inspections, buyer financing, closing dates, sellers backing out of a deal etc. However there are several companies who are looking to improve the buying and selling process and have some fascinating business models. In this post we’ll share some of the innovations that are happening when it comes to buying, selling and financing homes.
Innovations in Financing a Home
SoFi’s offering is straight forward. They are best known for their 10% down mortgage product, offering jumbo mortgages of up to $3 million with no PMI. They currently offer 30 and 15 year fixed rate mortgages as well as a 7/1 ARM. By halving the down payment, they have opened up home ownership to more of their members. SoFi recently announced they were licensed in New York and I imagine they will get a great deal of traction there. In a recent podcast CEO Mike Cagney said that they’ve had multiple educational meet ups on the new offering in New York and have been inundated with requests from individuals looking to learn more.
Unison’s offering is a bit more unique. Unison can provide up to 50% of the down payment to purchase a property. The money is an investment into the home itself as opposed to being a loan which means your monthly payment remains the same and you are not required to have PMI. The company hopes to share in the profit when homeowners sell the property and will make money if the home has increased in value. Homeowners also have the opportunity buy out Unison after three years. The company details how this works on their website and shares certain scenarios where a property has gained value, lost value or stayed the same when a homeowner decides to sell the property.
Unison also has a program called Unison HomeOwner which provides cash to current homeowners in exchange for equity in the home. Homeowners use the money to eliminate debt, remodel, pay for school, invest, or as a cash cushion for financial stability. Unison HomeOwner was the first program that Unison debuted in the home ownership investment category.
Point’s product is similar to the Unison HomeOwner product and is an alternative to the Home Equity Line of Credit (HELOC). It is targeted at individuals who have equity in their home but would like to unlock some of the capital tied up in the home. Homeowners sell small fractions of equity in their home but must retain at least 20% of the equity after the investment. After a pre-qualification Point will make an offer, which is typically between 5% and 10% of the home’s value. From there an appraiser will come out to ensure the property is valued correctly. Point is paid back in one of three ways: when you sell your home, at the end of the term or at a time when you choose to buy back the value of the home. Similar to Unison there are different scenarios depending on what has happened to the value of the home. [Read more…]