{"id":459,"date":"2020-05-14T18:59:00","date_gmt":"2020-05-14T18:59:00","guid":{"rendered":"https:\/\/nms-archive.tiltedchair.co\/?p=459"},"modified":"2021-08-19T20:59:28","modified_gmt":"2021-08-19T20:59:28","slug":"cant-qualify-for-a-heloc-fintechs-will-buy-a-stake-in-your-home-equity","status":"publish","type":"post","link":"https:\/\/nms-archive.tiltedchair.co\/?p=459","title":{"rendered":"Can\u2019t Qualify for a HELOC? Fintechs Will Buy a Stake in Your Home Equity"},"content":{"rendered":"\n

A new breed of financial technology firms is pitching American homeowners on a different way of tapping into home equity: if you\u2019re sitting on a pile of it, these investors will buy a piece of your house. The co-ownership arrangement isn\u2019t cheap, but it presents an alternative to furloughed or laid-off workers<\/a> who no longer qualify for home equity loans or cash-out refinances<\/a>.<\/p>\n\n\n\n

You get the cash now, and your new co-owner shares in the rise \u2014 or perhaps fall \u2014 in the value of your home when you sell.<\/p>\n\n\n\n

\u201cThis is a true risk-sharing product,\u201d says Eoin Matthews, co-founder of Point, one of the home equity investors.<\/p>\n\n\n\n

Other players in this new niche include Noah, Hometap, and Unison. The upstarts are keyed into a financial reality that has emerged over the past decade: While many American homeowners have seen their housing wealth grow, turning that wealth into cash isn\u2019t always easy.<\/p>\n\n\n\n

\u201cMost Americans are asset-rich and cash-flow sensitive,\u201d says Noah founder Sahil Gupta.<\/p>\n\n\n\n

Home Equity Has Risen to Record Levels<\/strong><\/p>\n\n\n\n

U.S. homeowners held a record $18.7 trillion in home equity at the end of 2019, according to the Federal Reserve. According to ATTOM Data Solutions, 14.5 million homes in the U.S. are \u201cequity-rich,\u201d meaning the loans secured by the homes amount to less than half the properties\u2019 market value. An enviable situation for the homeowners, but gaining access to that wealth isn\u2019t easy, particularly for self-employed workers or those with uneven incomes. \u201cWhen they want to get a bank loan or a home equity loan, it becomes challenging,\u201d Gupta says.<\/p>\n\n\n\n

How It Works<\/strong><\/p>\n\n\n\n

The home equity investors generally follow the same script. First, you\u2019ll need plenty of equity in your house. Point requires 30 percent or more, while Noah requires at least 25 percent. So if your house is worth $400,000, the balance on your mortgage could be no more than $280,000 to $300,000.<\/p>\n\n\n\n

You\u2019ll also need to live in a place where the companies are doing business. Point buys equity in parts of California, Washington, Oregon, Colorado, New Jersey, and other states. Noah is in California, Utah, Washington, Colorado, and Oregon.<\/p>\n\n\n\n

Hometap operates in California, Florida, Maryland, Massachusetts, New York, North Carolina, Oregon, and Virginia.<\/p>\n\n\n\n

Bad credit generally isn\u2019t an obstacle. Point requires a credit score of only 500 \u2014 although it seems unlikely that a homeowner sitting on a cache of home equity would have a score that low.<\/p>\n\n\n\n

Point and Noah both will write checks for amounts ranging from $35,000 to $350,000.<\/p>\n\n\n\n

This concept has become popular in the fintech world. Investors in Point include Silicon Valley venture capital firm Andreessen Horowitz and former Citigroup chief executive Vikram Pandit.<\/p>\n\n\n\n

How Much It Costs<\/strong><\/p>\n\n\n\n

These home equity investments aren\u2019t loans, so there\u2019s no monthly payment. Instead, your new partner gets a claim on the appreciation in your home, an obligation that comes due when you sell.<\/p>\n\n\n\n

Point offers one scenario based on a $50,000 investment in a $500,000 home. In this example, Point sets what it calls a \u201crisk-adjusted home value\u201d of $425,000, and it keeps 20 percent of any appreciation above that number.<\/p>\n\n\n\n

Say the owner sells in five years, and the home has appreciated to $608,300. That\u2019s an increase above Point\u2019s value of $183,300, so the homeowner gives Point 20 percent of that, or about $36,700.<\/p>\n\n\n\n

The owner would repay Point the original $50,000 a loan, plus a chunk of the home\u2019s value increase for a total payoff of $86,700. That equates to an annual percentage rate of more than 12 percent. In other words, it\u2019s not cheap money.<\/p>\n\n\n\n

In that example, the numbers break down like this:<\/p>\n\n\n\n