American homeowners are sitting on a record amount of home equity, but many are not accessing what might be their greatest source of wealth.
While home equity loans and reverse mortgages can help homeowners tap equity, they could be considered just another form of debt, and maybe that's part of the reason why fewer Americans are using these loans their equity.
The situation has given rise to a fairly new concept called homeownership investment, which may transform the way consumers cash in on their home equity.
Patch Homes is one such company looking to grow in this burgeoning space.
The California-based company offers homeowners the opportunity to share their future home price appreciation in exchange for physical cash, typically between 10-15% of their home's value. Among the eligibility requirements, homeowners must have a credit score of at least 630 and a loan-to-value of less than 75% of their home.
Created by Sahil Gupta and Sundeep Ambati in 2016, Patch gives homeowners the option to pay back the investment within 10 years without any interest or to make monthly payments in the interim, thus preventing them from accumulating more debt.
“We were inspired by a big gap in financial markets, where the banks are only capable of offering consumer credit offerings,” Gupta said. “The only option available forces consumers to make a choice of increasing their debt burden or not accessing equity in their home.”
“A lot of these homeowners are looking for alternatives to home equity loans, HELOCs, unsecured loans, or even credit cards,” Gupta said. “They’re tired of same old credit offerings and are looking for something new and innovative that solves their cash-flow problem.”
The company said it has worked with tens of thousands of California homeowners since it launched, helping them save more than $1,000 a month and boosting credit scores by more than 40 points.
Gupta said Patch has plans to expand to Oregon, Utah, Arizona, Colorado and New York in the near future, with a long-term goal of helping homeowners nationwide.
“We have created a financial alignment that is a true partnership with homeowners and positively impacts a homeowner’s financial health, which has the potential to unlock more than a trillion dollars of wealth for consumer spending,” Gupta said.