Shared equity startup HomePace has secured $7 million in Series A funding led by homebuilder Lennar’s venture arm, LENx, which will allow the company to launch a homebuyer solution to help buyers double their down payments.
Founded in 2020, Park City, Utah-based HomePace lets homeowners tap up to $250,000 in equity by agreeing to share a portion of their future gains or losses when they sell their home. HomePace raises capital from institutional investors and partners with credit unions, community banks, financial advisors, and other lenders to bring in clients.
The new homebuyer solution will help many would-be homebuyers qualify for a mortgage and avoid taking out private mortgage insurance by lowering their debt-to-income ratio, co-founder and CEO Joe Cianciolo told Inman.
With the median sales price of a new home rising by $77,000 over the last year, to $436,700, the rollout of HomePace’s homebuyer solution should be welcome news for many of Lennar’s customers, as well.
“That’s a big piece of the reason why we ended up choosing Lennar to lead the fundraise,” Cianciolo said. “As the second largest home builder in the country, there’s a lot of institutional knowledge and data and expertise that we’re certainly going to be able to draft on.”
Through LENx, Lennar has invested in a portfolio of two dozen companies including iBuyer Opendoor, cloud banking software developer Blend Labs, digital title, escrow and closing provider Doma, and rent-to-own proptech startup Divvy Homes.
Previous HomePace investors Bling Capital, NextView Ventures, and Ride Ventures joined LENx in funding the round, at a valuation that the company declined to disclose.
Cianciolo and cofounder Megan Graf, HomePace’s COO, are former BlackRock directors who were executives at wealth management platform FutureAdvisors, which Black Rock acquired in 2015. Another HomePace co-founder, CIO Jeboah “Bo” Joerg, is a former vice president in derivatives trading at Goldman Sachs.
Currently available in Arizona, Colorado, North Carolina, Tennessee, Utah, and Washington, HomePace draws up personalized “co-investment contracts” that let homeowners cash out up to 15 percent of their owner-occupied, single family home’s current value. In exchange, homeowners grant HomePace a percentage of future gains or losses when they sell their home.
“If the home increases in value, we both make money,” HomePace promises on its website. “If you sell for less than the initial value, we will share in a portion of the loss as well.”
HomePace also charges fees that include cost of an independent appraisal or inspection, and a processing fee of 3 percent to 4 percent of the investment amount. Those fees are deducted from the proceeds that HomePace provides to the homeowner, after which the company becomes a secondary lien holder until the homeowner sells or buys out their 15-year contract.
With no monthly payments and the ability to provide funds to clients with credit scores as low as 600, HomePace says its home equity co-investment product is popular with homeowners who want to pay off high-interest debt, but may not qualify for a more traditional home equity loan or home equity line of credit (HELOC).
Rising interest rates are expected to curtail home price appreciation in the months and years ahead. In an April 19 forecast, Fannie Mae economists said they expect home price appreciation to moderate from a record 19.8 percent during the first quarter of this year to 3.2 percent by the final three months of 2023.
That’s not necessarily a bad thing, Joerg told Inman.
“The general consensus is that home prices cooling off is probably healthy for the market,” Joerg said. “If you’re in it for the long game, it’s probably best to have a slow grind higher than for us to continue to accelerate upward” until prices crash.
In addition to launching its new homebuyer product, HomePace says its new funding will help it expand into new states and build partnerships. Existing partners include Silverdale, Washington-based Connection Credit Union, Los Angeles, California-based University Credit Union, and Tucson, Arizona-based Vantage West Credit Union.
Editor’s note: This story has been updated to remove a statistic on equity investments that HomePace has made to date. The company says the statistic, from the company’s website, pertains to the industry as a whole. HomePace declined to provide metrics on its investments to Inman.