I’ve been peppered with introductions, postcards, and interview requests to discuss the variety of new businesses cropping up to help homebuyers lock down properties, refinance and take cash out of their properties, and other creative models. On one hand, I’m petrified about the fine print of these programs and shudder about who won’t read it. I have a second Great Recession in my mind, a swatch of people who will simply take advantage of these ideas, and lose their homes. On the other hand, I see how the “old guard” mentality of cooperatives here is scaring off all the new buyers, and I wonder how these apps can help quell buyer fears (and coop board fears, too) just enough to bring about a meeting of the minds. It’s all about bringing confidence to the marketplace. That means confident buyers, to be sure.
Here are a few apps that jumped out at me- and some hot-to-warm takes on them:
What’s the catch?
Unison
Unison is a company that enables homeowners to cash out some of their equity today (up to 17.5% of the home’s appraised value) with no monthly cost going forward. In essence, it gives you cash now, and the company gets to participate in the upside later on when you sell. As an example, these were some of the costs for a condo refinance:
- Appraisal fee ($1250)
- Title closing fees ($2k)
- A 3% TRANSACTION FEE of the amount ostensibly borrowed, payable to UNISON. For this, the appraised value reduced by the 3% for the agreement.
When it’s time to sell, Unison’s participation is based on the amount given compared to the value of the home at that time. So if they lend you 10% of the value, they get 10% of the upside. You actually have the ability to buy them out before you close, but they are very clear that the valuation of the home, whatever it is, cannot reduce the amount below what they originally invested. So, for them, there is no downside risk.
My thoughts? It’s a pretty nifty idea, along the lines of a reverse mortgage, in that there are no ongoing costs until a sale. The one catch is that pesky appraisal. I worry that appraisals come in too low, and therefore the future upside for the company are too high. It may be interested in a world where someone needs cash now and gets close to a decent valuation- when they don’t have income or assets to back up a traditional refinance. But unless someone is in a situation like that, or really needs quick cash, I’m not convinced this is the right way to go. Although, listening to people discuss their horrible experiences refinancing, perhaps it will grow in popularity more quickly that I expect!!
Ribbon
This seems like a program geared for the moment. You want to buy a house and are taking a mortgage. Competition is so fierce that every time you bid, someone who is paying cash beats you out on the bid. Ribbon allows you to make an “all cash” bid, allowing you to lock in your financing at the pace you need. As long as you’re purchasing something in the $150,000-$700,000 range, this may be interesting.
What’s the cost of the program? Let’s say you’re buying a house for $500,000. If you get your financing lined up by the time of the closing, it will cost you $5000. So, securing a house adds $5000 to your purchase price. However, if you can’t get it sorted in time, it functions as a landlord until you close. You pay rent to the Ribbon company, and then you pay between 2-2.75% of the purchase price (!) to the company. That adds $10-15,000 to the purchase price. That’s no small potatoes! Again, a program that is unlikely to make waves in New York City.
Homeward
Homeward states that it realizes the catch that many homebuyers face nearly EVERYWHERE except New York City. The fact that they need to sell before they buy, and the choreography proves limiting in a competitive market. I know that this is the one situation that sellers, no matter how desperate, will not allow. Mortgage contingencies are okay, just not sale contingencies. But everywhere else? Yes, it’s an everyday thing.
Never mind that they are only doing business right now in Texas, Colorado and Georgia. Their website gets a bit in the weeds, and wants to capture your information before they give you all of the fees for their programs. So I can’t tell you state-by-state what they are charging. But it strikes me that their website is a little less user-friendly than Ribbon. Similar idea, though.
Please explain how to make a cash offer without paying cash by partnering with a company (like Ribbon, Homeward, Accept, Inc., etc.)
Accept
Accept.inc ‘s model is a bit sexier than the others I’ve seen so far. They are actually a mortgage lender, so, somehow, there are no extra costs on top of normal mortgage fees. You just have to use them for your mortgage. No appraisal contingencies, and you can make offers with the power of an “all cash” offer behind you. Pretty exciting here.
And Surely, many more to follow
I’m excited to see what else comes down the road. And surely, to see what might help New York City buyers be competitive against all-cash buyers. More to come… -Scott