Seventy million dollars in seed funding is a colossal investment for an unproven tech startup, even one that promises to fully disrupt a relatively low-margin, traditional industry like mortgage lending. But this is no ordinary mortgage startup. Venture capital investors including Zillow founder Spencer Rascoff and Trulia co-founder Pete Flint, believe that Tomo has the potential to topple the legion of lenders that have increased market share, invested heavily in technology and lapped up record profits in recent years.
Tomo, founded by former Zillow executives, is built on the premise that homebuyers need to gain an edge, especially in a market largely defined by limited inventory and fierce bidding wars.
“The place where you see the most innovation in the real estate industry in the past decade or so is what we call ‘search-and-find.’ So putting listings online in a portal,” said Carey Armstrong, who co-founded the company with Greg Schwartz, and ran Premier Agent at the Seattle real estate tech giant. “Our job is to help you purchase the home of your dreams, not just to browse and look at pretty pictures.”
To provide that competitive edge, Tomo claims to issue mortgage pre-approvals within hours – not days – and cut closing times to 21 days (the industry average is 47 days). The startup says it has also partnered with top local real estate agents who know their way around the markets they serve.
“There’s a hunger among millennials and younger folks that want to buy homes in a different way,” Armstrong said in an interview with RealTrends. “They’re used to modern experiences with great service and digital experience. That has not traditionally been available to them [when buying a house]. You’re working with lots of different providers who are all offline and don’t really coordinate amongst themselves. Where we come in is providing a home-buying service that is a single stop and it’s as digital as you want it to be but there’s still a human being available to advise you.”
Tomo claims its platform is different from its competitors, which would appear to range from traditional mortgage companies and banks, all the way to iBuyer brokerages like Zillow, Redfin. For starters, it does not originate mortgage refinancings. Tomo will only originate purchase mortgages, and it’s specifically targeting areas with especially fast-rising home prices and high demand among millennials, who are generally disadvantaged in today’s housing market.
Its digital mortgage product focuses on data, automation and third-party API integrations, the company says. Tomo claims it will offer the lowest mortgage rates in the industry by matching competitors’ rates. If an appraisal doesn’t come in on time or closing documents don’t make the deadline, Tomo executives say they will still close on schedule.
Success in the purchase side of the mortgage industry heavily correlates with the ability to scale a product and develop a durable pipeline with real estate agents. Some of the top lenders in America, such as Rocket Mortgage, United Wholesale Mortgage and loanDepot, have spent hundreds of millions of dollars developing technologies to close loans faster and make the homebuying process smoother for the consumer. Tomo would also have to overtake traditional banks and tech-focused firms like Better.com, which is also venture-capital-backed and says it will be worth $7.7 billion following a merger and acquisition later this year.
Tomo has a big opportunity – Freddie Mac expects purchase originations in 2021 and 2022 to approach about $3.6 trillion. And no single mortgage lender has even 10% market share overall (Rocket is the largest), so entrée into a very fragmented market is achievable if it has the funds to compete.
And by the looks of it, Tomo will have the money. The $70 million seed round, the third-largest in U.S. history, follows a pre-seed round of $40 million. Ribbit Capital led the latest round and other participants include DST Global, NFX, SVB Capital and Zigg Capital.
Tomo has already launched Tomo in Seattle, Dallas and Houston and expects to launch in other hot markets later this year.
The idea behind Tomo is to help the buyer get an upper hand when buying a home.
One of the company’s claims is it uses data to get homebuyers to close in three-weeks time.
According to ValuePenguin, the average close-out time is 47 days on all loan types. Tomo wants to cut that time down.
The goal is to get the buyer their desired home as soon as possible. Pre-approvals are reportedly done within hours instead of days and guarantee the buyer on-time closing.
There’s plenty of opposition out there. Perhaps to stand out, the company stated that there is no refinancing. Instead, its focus is securing buyers new mortgage loans.
It’s early. Tomo has its work cut out for them in a competitive pool of other proven mortgage companies.