With home equity sharing products beginning to make a comeback following the housing crisis and recovery, one California startup is now exiting its private beta phase and offering a home equity financing platform that allows existing homeowners to share their future home price appreciation in exchange for upfront cash.
Patch Homes, led by co-founders Sahil Gupta and Sundeep Ambati, provides its equity-share product at 0% interest with no monthly payments, in exchange for the future appreciation, or depreciation, of the home. The company holds a lien on the property once the contract with the homeowner is signed, and underwrites each agreement on a case-by-case basis, meaning homeowners can access different amounts of equity in the form of cash depending on their needs, financial profile, and level of equity. Homeowners with existing mortgages are eligible, depending on the amount of equity they hold and as long as the loan-to-value ratio on the property does not exceed 80%. Homeowners must have a credit score of at least 620 to qualify.
“Generally what we have found is people will access around 10% to 15% of the value of the house in the form of equity,” Gupta tells RMD. “We want homeowners to have another option when looking at home equity.”
The company has worked with homeowners of all ages in its beta stage, with home types ranging from condos to single family homes and investment properties. The founders say they’re expanding financing options beyond what may be available through traditional lenders such as banks.
Upfront costs are similar to traditional home loans, including title and escrow services, with a 3% fee based on the amount of equity that will be accessed. Contracts are written in 10-year terms, with the ability for the homeowner to exit the contract prior to that term under certain circumstances, or to transfer the property in the case of a homeowner passing away.
Like other recent equity-share products, Patch may not compete directly with reverse mortgages in that its terms and benefits vary from the traditional Home Equity Conversion Mortgage, but its executives say the product could serve as a bridge for homeowners who may not yet qualify for a reverse mortgage.
“We get a number of clients that may not be eligible for a reverse mortgage yet; they are in their late 40s or 50s and may not be sure if a reverse mortgage is right for them, but they are in a position where they are slowing down or want to retire,” Ambati says. “A lot of times Patch Homes ends up being a bridge or another solution to access their equity in the meantime.”
Patch Homes has recently secured $1 million in seed funding, and counts among its investors Techstars Ventures, KIMA Ventures, Eric DiBenedetto, and Airbnb co-founder Nathan Blecharczyk. Currently the product is available in California and will be rolled out in other regions as the platform grows.
Written by Elizabeth Ecker