What is “Savoring” and How Can it Help You Build Wealth?
We know how frustrating it can be to buy a house in today’s market, ranging from scouting to paperwork, to set aside savings to cover a down payment. What’s more aggravating is that Millennials are not saving enough money – a study published by Apartment List, in which they surveyed 6,400 millennials; revealed that half of the respondents had zero savings for a down payment. Constant-rising housing costs coupled with student debt are making it extremely difficult for millennials to afford a house of their own.
Most recently, a new wave of startups that allows customers to buy a home with no down payments has started to surface. Among those is ZeroDown, a real estate startup that allows qualified borrowers to finance their home with no down payments. ZeroDown buys the house of the customer’s choice with its own funds and leases it back to the customer in exchange for “purchase credits”. After two years, the customers have the chance to buy the house from ZeroDown using the purchase credits they have earned. In other words, the company facilitates homebuyers with a lease-to-own option so they can save money while living in the house of their choice. Homebuyers can then use those savings (namely purchase credits) to cover the down payment or move out after 2 years and cash out those credits. To qualify potential buyers, the company takes a look at their whole financial picture, including income, savings, credit score, stock options, and other assets.
Another company is Divvy Homes, which similar to ZeroDown helps home buyers by giving them the chance to live in the house of their choice even if they cannot afford it yet. However, Divvy Homes has a slightly different business model. In the program, the homebuyer will put 2% down for the home and Divvy will cover the rest. The property is then leased to the homebuyer with monthly payments that cover both rent and an equity portion. The aim is that homebuyers build an equity stake of 10% in the house after three years while working on consolidating debt and improving their credit score, at which point Divvy Homes will provide buyers with the option to buy out the remainder of the house with a mortgage, using the credits as a down payment. While rent-to-own companies are oftentimes accused of being predatory and trapping buyers in a debt cycle, Brian Ma co-founder and CEO of Divvy Homes has explained that the platform is built on technology and transparency. “Our highest priority is to educate, support, and partner with our home buyers to make sure they transition smoothly into homeownership,” Ma said. “Our program is specifically designed to be fair and transparent - we want every home purchase to be a win for our customers.”
Other startups working on facilitating the home-buying process include Point and Cher. Point has a fractional ownership business model in which they buy equity of the customer’s house – should the customer be struggling financially and allows them to keep the house with no monthly payments or interest rates. They simply own a stake in the house, and the customers have the option to either buy Point out or sell the house – during which, Point cashes on the transaction. Cher, on the other hand, offers a different approach, they connect customers with a community of pre-approved co-borrowers who are looking to buy a house as well. By having a co-borrower to cover the down payment and the subsequent costs, Cher makes it easier than before to buy a home. Additionally, they have a security program that protects users even if one of the co-owners loses their job – this makes the home buying process risk free and provides a variety of opt-out options.
These new models could change the landscape of homeownership, especially for millennials – who are driving a decline of national homeownership rates. According to the Federal Reserve and U.S. Census data, national homeownership rates amongst adults under 35 dropped from 42% in 2003, to 35% in 2017. Startups like these could alleviate the downward trend and give Millennials the opportunity to finally buy a house of their own.