Not having a down payment, being turned down for a loan, or being outbid are some of the biggest pain points historically when buying a home, especially for first-time homebuyers. There are a few companies, however, taking it upon themselves to pursue novel solutions to important problems like these.
The solution is called “shared home equity.” Essentially, as a way to overcome the obstacles mentioned above, a consumer can now partner with an investor to purchase a home.
The concept, which is highlighted in a recent report in The Wall Street Journal, works like this:
- A homeowner agrees to partner with an investor and both own a stake in the house.
- The homeowner gets additional cash to purchase the home, and the investor gets a piece of the appreciation on the house if it is sold.
- If the house is later sold at a loss, both the investor and the homebuyer share in that loss with the investor taking a percentage hit and the homeowner owing the investor money.
The agreement gives the investor another avenue to dip their toes into the market. For the homebuyer, it erases the need for high-interest loans because of a low down payment, and they don’t get saddled with mortgage insurance.
Shared home equity is a solution that is being backed by big names in Silicon Valley (Mark Zuckerberg and Andreessen Horowitz), and companies like Unison, Point Digital Finance Inc. and Patch Homes Inc. are already offering such a product, according to the report. It states that Unison, in fact, completed 600 of these within the last year. And these shared equity products aren’t just being utilized by homebuyers needing an extra boost for their down payment – they can also be used for cash-out refinances and home equity loans.
Unison and the other companies offering shared home equity are traveling down roads less traveled – roads many may consider as “unproven.” They are looking to gain a true competitive edge because of it though, and considering they are solving a serious problem for many homebuyers with a creative solution, can you blame them?
Disruptions like this continue to happen throughout our industry, with startups developing technology solutions for credit seekers with no borrowing history, and many companies on the Forbes Fintech 50 of 2018 being related to lending or payments.
Times are changing. Is your company built for the future?