Join us for Inman Connect now today to delve into key topics such as what needs to double up this summer, how to prepare for the next wave of financial disruption, critical success factors every team leader needs to know, and more. Register now to watch live the rest of the day and catch up on demand.
Thanks to government regulations and rules governing mortgage giants Fannie Mae and Freddie Mac, there have been many innovations in home mortgage lending in recent years – and very few of them have benefited consumers.
This is changing as the wave of startups provide alternatives to mortgages that allow tenants to become buyers and existing homeowners to trade up or down in challenging market conditions.
These alternative mortgages help real estate agents broaden their pool of potential buyers, get more accepted bids, and keep deals from crashing before they reach the final table.
“This is another profound transformation in the way transactions are made, and it’s not going anywhere,” Inman Editor-in-Chief Clelia Peters said during a Connect Now panel discussion with the founders and CEOs of two industry leaders. Divvy homes as well as HouseLight…
Divvy Homes is offering a new approach to rent-to-buy that allows agents to direct potential home buyers to a company to fill out an application that founder and CEO Adena Hefets says is about 10 times easier to fill out than a mortgage application. Divvy empowers customers to shop on a budget. When they find a home they like, the company makes a money offer on their behalf.
Divvy pays full commission to the agent. To move in, the client undertakes to charge a share of ownership in the amount of 1 to 2 percent of the value of the house. They then increase their ownership stake from 5 to 10 percent over the next 3 years, with the right to buy a home from Divvy at any time before that if they can qualify for a mortgage.
“This is a really good way to take a consumer … and let them become as powerful as an institutional shopper,” Hefets said.
Currently available in 16 markets – Atlanta, Cincinnati, Cleveland, Dallas, Denver, Fort Lauderdale, Houston, Jacksonville, Memphis, Miami, Minneapolis, Orlando, Phoenix, San Antonio, St. Louis, and Tampa – Hefets said Divvy can serve: be home buyers whose credit is not high enough to qualify for a mortgage or down payment assistance.
“I think about these tools, let’s say in your market, 20 percent of the population can get a mortgage, and everyone else will be tenants,” Hefetz said. “Now you can take 40-60 percent of the population and turn them into home buyers … so the goal is really to attract more consumers and turn them into home buyers.”
Available in California, Colorado, Florida and TexasThe HomeLight Cash Offer allows home buyers to purchase a home with HomeLight funds, closing in just 7 days. Buyers pay a 1% commission if they also get a mortgage. HomeLight home loan (In Florida, the commission is 1.5 percent). If they don’t get a mortgage through HomeLight, the commission will be 3 percent.
HomeLight founder and CEO Drew Ware said there is also a 21-day free closure option when HomeLight does not take over the home. Instead, by acting simultaneously as a mortgage lender and as a title and contingent company, HomeLight “supports the entire [transaction] with HomeLight balance “.
“We fully guarantee the borrower while he buys the loan, not when he is in escrow,” Uher said. “We think it’s crazy that in 2021, mortgage companies are still waiting to guarantee borrowers until they get a deal. This is what causes many transactions to fail, and this is what creates the uncertainty in these transactions. “
HomeLight Trade-In helps existing homeowners trade up or down by working with the seller’s real estate agent to make an offer for their existing home and finance the purchase of their next home with a no-contingency offer.
In California and Colorado, HomeLight charges a 1.5 percent commission on the purchase, ownership and sale of a customer’s existing home if they also use HomeLight home loans to fund their purchase (commission is 2 percent in Texas). If the seller uses another lender to buy their next home, the commission is 3.5 percent in California and Colorado and 4 percent in Texas.
However, if HomeLight can sell the home for more than what it paid for, the seller will make an additional profit minus the costs of selling and
“We give all of this profit to the consumer,” Ware said. “They don’t have to worry about iBuyer taking advantage of them and making a profit on the sale of their home.”
In previous installments of her three-part Connect Now series on Real Estate Financing Disruptions, Peters explored transaction intermediaries like Ribbon and Homeward, and new instruments for using equity capital such as Point and EasyKnock.
To conclude the series, Peters encouraged agents to look for these and other innovative companies and learn how their products work.
“These types of instruments will only go deeper into the transaction,” Peters said. “Right now, I think there is a tremendous opportunity to pioneer in your markets where these tools are available and use them in a way that gives you an edge that very few people in your market have.”
Ware said that when “the entire mortgage industry” is aligned around the qualification standards that govern Fannie Mae and Freddie Mac, the conditions are set for “great companies like Divvy and Homelight” to solve the problems of home buyers and help them do better.
“When we think about the future, we think that a huge amount of transactions in the US will be accompanied by some kind of technology mechanic,” Uher said. “We think that eventually over 80 percent of the housing market will adopt this mechanic, which is something that we and other companies in the field are really excited about.”
“I think the way to break the market is that you now have a larger ‘TAM’, or common target market, to go to because of these products,” Hefets said. “The first thing you should pay attention to is:“ Can my client get a mortgage or not? »If they can’t, you now have products you can send to continue to be a home buyer. If they can, you might ask yourself, “Okay, are they winning the bids they put on houses, or are we just constantly losing so they still shop with me?” And if the answer is that they are constantly losing because of financial unforeseen circumstances, there are products that can help solve this problem. “
the pool of home buyers will expand due to alternative mortgage loans