Fintech

RenoFi raises $6.4 million to help lenders offer home renovation loans

RenoFi Loans are based on the after renovation value of a home rather than the current value

RenoFi, a fintech platform that aims to empower lenders to offer a “next generation” of renovation loans, has raised $6.4 million in Series A round of funding, the company has told HousingWire exclusively.

Canaan Partners led the financing, which also included participation from new investor Comcast Ventures and existing backer First Round Capital. The investment brings RenoFi’s total venture raised since its inception in 2018 to $7.15 million.

Justin Goldman, the company’s CEO and co-founder, emphasizes that RenoFi is not a lender.

Instead, it partners with mortgage lenders such as credit unions, which offer “RenoFi Loans.” 

“Most lenders have this major gap in their product suite, and are not offering renovation loans. RenoFi provides the platform that makes it seamless for a lender to offer renovation loans without hiring new staff,” Goldman told HousingWire. “It just integrates with their existing infrastructure.”

RenoFi’s goal is to solve a problem faced by many homeowners who want to renovate but don’t have established equity in their homes that they can tap into. 

Goldman first came up with the idea for RenoFi after experiencing his own struggles with financing renovations when purchasing a home that was built in the 1960s. After he and his wife researched their options, he realized there was little out there in terms of renovation loans, especially for those who had not yet built up equity.  The idea for RenoFi was then born.

Many homeowners find themselves dipping into their savings or retirement, borrowing on credit cards, or taking out personal loans to fund renovations. They also often do not want to apply for construction loans, which can be cumbersome and not as well-suited for smaller projects.

The way RenoFi works is that homeowners can borrow against their home’s anticipated post-renovation value (as determined by a third-party appraiser), rather than borrowing against the home’s current value. This, according to Goldman, can boost buying power by as much three times. Loans can be funded in less than 30 days. (This model is similar to the way construction loans work but less complex, less risky and less costly, RenoFi says).

We’re the best of both worlds. RenoFi takes the after renovation value concept from construction loans and marries them with ease of home equity loans,” Goldman told HousingWire. “But there’s no inspection and no contractor involvement. It’s a simple way to borrow based on future values versus old-school construction loans.”

Pandemic-driven demand

When the COVID-19 pandemic hit in March, RenoFi initially saw a dip in demand. But by mid-April, that dip turned into a surge and the startup saw a record number of demand for its loans in May, according to Goldman .

With so many people spending so much more time at home, interest in home renovations is on the rise. 

An increasing number of homeowners are itching for an upgrade after months of being stuck at home,” Goldman says. “Also, the work from home movement is suddenly exploding forcing homeowners to rethink their space. Others are fleeing urban centers and flocking to the suburbs buying old homes sorely in need of renovations.”

Lower mortgage rates are also fueling more home purchases, and that in turn is boosting demand for RenoFi loans.

The company claims that its renovation underwriting platform not only protects the lenders, but also the homeowners. 

“Our detailed feasibility analysis and contractor diligence ensures homeowners don’t take on a project that is doomed before it even starts,” Goldman says.

RenoFi charges a fee every time a lender puts a homeowner into one of its RenoFi Loans. That’s its primary source of revenue. But it also charges a demand generation fee when it pairs a homeowner that came in through its own site with one of its lending partners.

At the beginning of 2020, RenoFi had just one major lending partner, Ardent Credit Union, but has since added new ones, with the number climbing every month, according to Goldman.

“When we first started RenoFi, we called over 500 banks and credit unions of all sizes to understand how many were offering renovation financing and to understand if any were lending based on the after renovation value (ARV),” he said. “We found out that more than half of the community banks we called did not have such capabilities and over 90 percent of big banks and credit unions lacked ARV lending capabilities.”

Good timing

As part of the latest financing, Brendan Dickinson of Canaan Ventures joined the board of directors. In a blog post, he outlined why his firm believes the startup is in fact closing an existential funding gap in the massive home renovation market (which was estimated to be $354 billion in 2019 alone).

During COVID, top of funnel for all home renovation platforms have been growing as people have sheltered in place and considered new needs in their current home – or look to purchase a new home that needs work,” he wrote. 

RenoFi, according to Dickinson, is building a differentiated network of credit union partners to fund renovation loans. 

“Given their mandates, credit unions consistently provide some of the lowest cost of capital in lending. And they are nimble, innovation-minded partners,” he wrote. “However, they have struggled to build a digital presence and find new members online. By building a network of credit unions, RenoFi is building a symbiotic network, helping credit unions build their memberships while also providing the lowest cost of capital loans to consumers.”

Also, as of late, home equity loans have been in the news because some of the biggest lenders in the country have suddenly shut down their programs. 

“Smaller lenders such as community banks and credit unions have not pulled back,” Goldman says. “Not only are our credit union lending partners still offering home equity loans, but they along with their partnership with RenoFi, are actually innovating at a time when the big banks are pulling out. “

The company plans to use its new capital to fund further product development of its Renovation Underwriting Platform, creating more awareness of RenoFi Loans as it expands into new geographies and bringing on additional lending partners. At the start of the year, RenoFi Loans were only available in the Greater Philadelphia area (where the company’s three co-founders are based). But with the addition of new lending partners in the past few weeks, it now has lenders offering RenoFi Loans in 49 out of 50 states.

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