Connect with us

Bad Credit

Can’t qualify for a HELOC? Fintechs will buy a stake in your home – Boston Herald

Published

on

A new breed of financial technology firms is pitching American homeowners on a different way of tapping into home equity: If you’re sitting on a pile of it, these investors will buy a piece of your house.

The co-ownership arrangement isn’t cheap, but it presents an alternative to furloughed or laid-off workers who no longer qualify for home equity loans or cash-out refinances.

You get the cash now, and your new co-owner shares in the rise — or perhaps fall — in the value of your home when you sell.

“This is a true risk-sharing product,” says Eoin Matthews, co-founder of Point, one of the home equity investors.

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’t always easy.

“Most Americans are asset-rich and cash-flow sensitive,” says Noah founder Sahil Gupta.

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 “equity-rich,” meaning the loans secured by the homes amount to less than half the properties’ market value.

An enviable situation for the homeowners, but gaining access to that wealth isn’t easy, particularly for self-employed workers or those with uneven incomes.

“When they want to get a bank loan or a home equity loan, it becomes challenging,” Gupta says.

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

You’ll 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.

Hometap operates in California, Florida, Maryland, Massachusetts, New York, North Carolina, Oregon and Virginia.

Bad credit generally isn’t an obstacle. Point requires a credit score of only 500 — although it seems unlikely that a homeowner sitting on a cache of home equity would have a score that low.

Point and Noah both will write checks for amounts ranging from $35,000 to $350,000.

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.

These home equity investments aren’t loans, so there’s no monthly payment. Instead, your new partner gets a claim on the appreciation in your home, an obligation that comes due when you sell.

Point offers one scenario based on a $50,000 investment in a $500,000 home. In this example, Point sets what it calls a “risk-adjusted home value” of $425,000, and it keeps 20% of any appreciation above that number.

Say the owner sells in five years, and the home has appreciated to $608,300. That’s an increase above Point’s value of $183,300, so the homeowner gives Point 20% of that, or about $36,700.

The owner would repay Point the original $50,000 a loan, plus a chunk of the home’s value increase for a total payoff of $86,700. That equates to an annual percentage rate of more than 12%. In other words, it’s not cheap money.

In that example, the numbers break down like this:

— Home’s value: $500,000

— Point’s discounted value: $425,000

— Sale price five years later: $608,300

— Appreciation: $183,300

— Point’s 20% cut: $36,600

— Effective interest rate: 12.1%

In the event a home’s price soars, Point’s return is capped at somewhere in the range of 15% to 20%, Matthews says.

“This has to be better than a credit card,” he says.

By contrast, rates on home equity lines of credit have fallen as low as 4.25%.

If the price of the home plunges beyond the company’s discounted value, the homeowner would repay Point less than the original investment.

Matthews says Point typically takes 25% to 35% of a home’s appreciation. That figure varies based on such factors as the owner’s equity in the home, the owner’s credit history and the property’s potential to appreciate.

There are also upfront costs. Homeowners pay a fee of 3% of the home equity investment, plus appraisal fees and other closing costs.

Point has done several thousand deals, and its typical customer gets an investment of $85,000. After fees, the homeowner receives a check in the neighborhood of $81,000, Matthews says.

Joe Zeibert, managing director at Nomis Solutions, calls the home equity investment concept “super-interesting.” For homeowners, though, there’s an obvious disadvantage.

“You’re absolutely giving up upside,” Zeibert says. “If you’re going to be in that house for 20 years, you need to know you’re giving away a chunk of appreciation.”

The home equity investors see their product gaining new appeal during the coronavirus pandemic. Fearing a recession, lenders have grown wary of home equity lines of credit and cash-out refinances, two traditional ways for equity-rich homeowners to tap into their real estate wealth.

One of the home equity investors, Unison, says it has “temporarily suspended” making offers to homeowners as the coronavirus roils housing markets. Point has pulled back, too, although Matthews says the company is already ramping back up.

“We’ve cut back a lot,” he says, “but we are still funding some customers.”

He predicts Point will return to a normal pace of transactions by the end of June.

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Bad Credit

Possible Raises Series B and Moves Fully Remote | State

Published

on

SEATLLE, Oct. 20, 2020 /PRNewswire/ — Possible raises $11 million in new equity funding to expand the team and to provide additional products for its customers. Union Square Ventures led the round, with participation from existing investors Canvas Ventures, Unlock Venture Partners, Columbia Pacific Advisors, Union Bay Partners, Tom Williams, and FJ Labs. The company has also secured $80 million in new debt financing from Park Cities Advisors.

Furthermore, the company is now fully remote and recently onboarded software engineers from across the US and the globe. Possible is committed to distributed work and actively recruiting for a number of other remote roles.

Possible provides friendly access to capital and a simple way to build credit for people who otherwise would get a payday loan or get hit with a bank overdraft fee. The company uses real-time financial data, rather than a credit score, to qualify customers and provide funds instantly through its iTunes and Android apps. Unlike payday loans or overdraft fees, Possible loans are paid back in small installments over multiple pay periods to allow customers to catch their breath. By reporting on-time payments to the credit bureaus, Possible enables its customers to build credit history and eventually qualify for cheaper, longer term financial products. On average, customers with low credit scores see their scores increase by 70 points within 4 months.

Tony Huang, Possible’s CEO explains, “So many people who live paycheck to paycheck can’t afford to build credit history. We’re helping them do it for the first time while providing them with a friendlier and more affordable small-dollar loan.”

Since launching in June 2018, Possible’s given out loans to hundreds of thousands of customers, helping meet short-term cash needs while building credit history or establishing credit for the first time. These customers, often with bad credit or no credit history, are underserved by traditional banks. Possible fills that gap and provides financial access to those who need it most while giving them the means to climb their way out.

Gillian Munson, Partner at Union Square Ventures, explains the thesis behind their new investment, “Through tech innovation, data-driven insights, and a focus on the customer, Possible is well on its way to winning the hearts and minds of both consumers and regulators alike, and building a trusted brand that endures.”

A 2019 Experian study shows 34.8% of consumers are subprime and can’t access money when they need it. They pay $106 billion in punitive fees each year to the existing financial system for short-term credit products. These consumers are trapped in predatory debt cycles of payday loans and overdraft fees without the means to rebuild their credit or improve their financial health. While there has been a number of new tech-enabled products in this space, most lead to similar debt cycles and don’t address the harder issue of improving long-term financial health. That’s where Possible comes in.

Since the company is now fully remote, Possible is actively hiring talent across the globe. Tyler, Possible’s CTO, explains, “Being fully distributed allows us to access the talent pool of the entire world. Our success so far is a reflection of the quality of our people, and we believe hiring globally will allow us to find exceptional people to join us in achieving our mission.”

About Possible

Possible is a fintech company based in Seattle, Washington. The company provides a friendlier and easier way for customers to access capital while also building credit history and improving long-term financial health.

About Union Square Ventures

Union Square Ventures is a thesis-driven venture capital firm based in New York City. USV manages over $1 billion in capital across seven funds and focuses investments in portfolio companies with the potential to transform important markets.

About Park Cities Advisors LLC

Park Cities Advisors LLC (“PCA”) is a privately held, SEC-registered alternative credit manager based in Dallas, Texas. PCA is focused on private lending across the specialty finance and FinTech sectors and provides debt capital to companies across a variety of industries through asset-based financing transactions.

Source link

Continue Reading

Bad Credit

Possible Raises Series B and Moves Fully Remote | State News

Published

on

SEATLLE, Oct. 20, 2020 /PRNewswire/ — Possible raises $11 million in new equity funding to expand the team and to provide additional products for its customers. Union Square Ventures led the round, with participation from existing investors Canvas Ventures, Unlock Venture Partners, Columbia Pacific Advisors, Union Bay Partners, Tom Williams, and FJ Labs. The company has also secured $80 million in new debt financing from Park Cities Advisors.

Furthermore, the company is now fully remote and recently onboarded software engineers from across the US and the globe. Possible is committed to distributed work and actively recruiting for a number of other remote roles.

Possible provides friendly access to capital and a simple way to build credit for people who otherwise would get a payday loan or get hit with a bank overdraft fee. The company uses real-time financial data, rather than a credit score, to qualify customers and provide funds instantly through its iTunes and Android apps. Unlike payday loans or overdraft fees, Possible loans are paid back in small installments over multiple pay periods to allow customers to catch their breath. By reporting on-time payments to the credit bureaus, Possible enables its customers to build credit history and eventually qualify for cheaper, longer term financial products. On average, customers with low credit scores see their scores increase by 70 points within 4 months.

Tony Huang, Possible’s CEO explains, “So many people who live paycheck to paycheck can’t afford to build credit history. We’re helping them do it for the first time while providing them with a friendlier and more affordable small-dollar loan.”

Since launching in June 2018, Possible’s given out loans to hundreds of thousands of customers, helping meet short-term cash needs while building credit history or establishing credit for the first time. These customers, often with bad credit or no credit history, are underserved by traditional banks. Possible fills that gap and provides financial access to those who need it most while giving them the means to climb their way out.

Gillian Munson, Partner at Union Square Ventures, explains the thesis behind their new investment, “Through tech innovation, data-driven insights, and a focus on the customer, Possible is well on its way to winning the hearts and minds of both consumers and regulators alike, and building a trusted brand that endures.”

A 2019 Experian study shows 34.8% of consumers are subprime and can’t access money when they need it. They pay $106 billion in punitive fees each year to the existing financial system for short-term credit products. These consumers are trapped in predatory debt cycles of payday loans and overdraft fees without the means to rebuild their credit or improve their financial health. While there has been a number of new tech-enabled products in this space, most lead to similar debt cycles and don’t address the harder issue of improving long-term financial health. That’s where Possible comes in.

Since the company is now fully remote, Possible is actively hiring talent across the globe. Tyler, Possible’s CTO, explains, “Being fully distributed allows us to access the talent pool of the entire world. Our success so far is a reflection of the quality of our people, and we believe hiring globally will allow us to find exceptional people to join us in achieving our mission.”

About Possible

Possible is a fintech company based in Seattle, Washington. The company provides a friendlier and easier way for customers to access capital while also building credit history and improving long-term financial health.

About Union Square Ventures

Union Square Ventures is a thesis-driven venture capital firm based in New York City. USV manages over $1 billion in capital across seven funds and focuses investments in portfolio companies with the potential to transform important markets.

About Park Cities Advisors LLC

Park Cities Advisors LLC (“PCA”) is a privately held, SEC-registered alternative credit manager based in Dallas, Texas. PCA is focused on private lending across the specialty finance and FinTech sectors and provides debt capital to companies across a variety of industries through asset-based financing transactions.



Source link

Continue Reading

Bad Credit

Business Loans – Make The Right Choice!

Published

on

Post Views: 73

Your business needs funding and there’s no denying that! ‘You need money to make money’ and this is most applicable in the business world! While it is fairly easy to start with an awesome idea, to make a business profitable, you need to invest a good chunk of capital.

Whether to buy equipment or hire the right minds, you need capital! And the best way to go about it is to search for the ‘right’ business loan solution. Finding the ‘right’ one amongst the plethora of available options is a tricky decision.

You’ll be under stress to match the repayment frequency. And thus, your business will suffer. Hence, finalizing the right business financing solution after analyzing your business structure, repayment terms, cash-flow, and urgency is the best practice.

Here’s a detailed breakdown of which business financing solution or small business loan will help your business better!

1. For Real Estate – SBA

SBA loan is one of the most popular loans for small business owners. This is pretty straightforward to understand but involves extensive paperwork. If you need a place to kickstart your business, this is most suited for you.

It is issued by a private lending party or a bank. But the interesting part is that this loan can be guaranteed up to 85% by the federal agency—Small Business Administration (SBA). Hence, lending institutions are free and content to give the loan.

The best things about this loan are the lowest down payments and low-interest rates. If you wish to pay in the very long term, you can do so. An SBA loan involves a lot of flexibility. The condition being you should have the right financial service provider to guide you.

2. For An Equipment Or Any One-Off Loan – Equipment Financing, Term Loan

Do you need a new computer, or a tablet for your employee, or maybe a vehicle for your business’ delivery needs? Equipment financing is best suited for such kinds of needs. You can also get up to 100% financing solutions.

But there is one drawback that you should be aware of. As long as the repayments are done on time, you’ll continue to have access to the equipment. But the moment you fail short of your commitment, the lending institution has completed control over ceasing it.

A business term loan is another solution for this kind of requirement. Term loans are based on the ‘term’ that can be anywhere from 1 to 5 years. So, the repayment has to be made in that time-frame. If you’re looking for business loans in Edgewater, NJ, this will be just about right for you!

3. Need To Balance Cash Flow – Business Line of Credit

Business Line of Credit is the best financing solution that can help you with balancing your cash flow or handling any emergencies.

You get access to a limited amount of funds for a set period of time that you need to pay with interest and as soon as you pay it back, your specific balance sheet is turned back to ‘0’. This indicates that you’re again eligible for using that fund.

You can do it repetitively. There is no drawback to this mechanism. So every time you have an emergency fund need, you can look towards the business line of credit.

The only shortcoming of this system is that the interest rate is high and may require collaterals for approval. However, it is one of the most appealing choices if you need capital and have a bad credit score!

4. Credit Card Based Businesses – Merchant Cash Advance

Do you own a business that involves payments via credit cards? If yes, then the merchant cash advance is the right solution for you.

A business like retail or food chain that makes use of credit card transactions the most, can utilize merchant cash advance to boost its business. The way this financing system works is, the lender will enquire about your daily credit card transactions to the terminal provider and get your exact details. Then, he will compare it with the asked amount. If both are in accordance, you’ll become eligible for the advance.

The repayment term is interesting for this financing solution. Instead of getting a fixed rate, the advance provider will give you the figure in percentage. So every day if you make $1000 and the decided percentage is 5, then $50 will be ‘withheld’.

A merchant cash advance acts more like an investment than a loan!

5. Have No Collateral – Invoice Financing, Equipment Financing

Not all businesses have the luxury of putting collateral on the line and getting access to the desired fund. If you fall into the same category, you do not need to worry! Invoice financing can help you out even in this crunch situation.

Your account receivables serve as collateral in this financing solution and can help you get a loan up to 85% of its worth.

The only downside is the interest rate that is marginally higher than the traditional solutions.

Bonus: For A Small Duration – Short Term Loan

What if you need a loan just for 18 months? You have some debt or need to manage the cash flow, but your requirement is small. Which loan is right for you?

Well, you can opt for a short term loan. This loan gives you instant access to a lump sum of money that should be paid within the next 18 months.

The best part about this loan is that bad credit doesn’t bother the process!

This can also support businesses that need temporary loans to manage or settle a few things. Businesses that do not need some loan that lasts for years!

But just like all other financing solutions, this loan as well comes with a few drawbacks.

The first one being the annual cost will be slightly towards the higher side and the second being that a few businesses may find it hard to cope-up with the weekly payments.

Source link

Continue Reading

Trending