Some Startups Offer New Paths to Homeownership
NEW YORK – People with steady incomes but blemishes on their credit often can’t qualify for a mortgage, but startups like Divvy Homes, ZeroDown, and Flyhomes attract buyers by creating new paths to homeownership at a time when high home prices and a limited supply of starter homes make it harder for people to enter the market.
Divvy, for instance, sets a price range for potential buyers and purchases the homes with cash on their behalf, after which the buyers pay 1% to 2% down and move in for a three-year lease. The startup charges monthly rent, about 20% of which goes toward equity to buy the home, and after three years, the buyer will own about 10% of the home, which generally is sufficient to qualify for a mortgage.
ZeroDown will purchase a home on a buyer’s behalf for a $10,000 fee and rent it to them for up to five years, after which they can buy the home using “purchase credits” earned by making lease payments.
Meanwhile, Flyhomes is a full-service brokerage. Its agents help buyers find a home, and Flyhomes then underwrites them for a potential mortgage and buys the home with cash on the buyer’s behalf.
“We level the playing field by making every buyer an all-cash buyer,” says Flyhomes CEO Tushar Garg.
While these models aren’t as risky as the rent-to-own programs that helped fuel the financial crisis, consumers might still be unable or not want to purchase the home after the rental period ends. They could also end up paying more for the property than they would if they were just leasing.
“For most people, the safest route is to wait until you qualify for a mortgage and save your money and keep renting like a regular tenant,” advises Sarah Bolling Mancini, an attorney with the National Consumer Law Center.
Source: Wall Street Journal (09/22/19) Geron, Tomio
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