A group of fintech players and venture capital firms are investing $1 million in Patch Homes, a startup that lends money in return for a share of home equity.
The investors include Airbnb co-founder Nathan Blecharczyk, Techstars Ventures, KIMA Ventures and Silicon Valley software company investor Eric Di Benedetto, according to a company press release.
The San Francisco-based online lending platform is positioning its products as an alternative to traditional home equity loans. It initially is targeting the California market and is planning to expand to other states in the second half of 2017, according to co-founder Sahil Gupta.
Like most equity sharing providers, Patch Homes often takes a second-lien position on properties that may already have a first mortgage.
In these situations, "We are very respectful and we want to work with lenders," Gupta said.
In addition to offering home equity loan alternatives, Patch Homes has a "wait list" of consumers interested in using equity sharing to fund down payments, according to Gupta. But that's not currently the company's core focus, he said.
Patch Homes will purchase equity shares from homeowners who lives in their properties and as well as investors. There are limits on credit scores that generally don't go much lower than 620. Homeowners also must have at least 30%-35% equity available in their homes and a maximum combined loan-to-value ratio of 80%.
Consumers can sell their homes at any time within 10 years but will have to pay back the amount they received when they do, plus any appreciation on their share of the equity. Patch takes responsibility for any depreciation risk.
A key challenge for equity sharing companies has been ensuring that they have adequate financial resources to sustain them for the decade or so they generally must wait for significant home price appreciation to occur.
Patch Homes' investors are "patient" and committed for the long-term, said Gupta.