Splitero Uses Alternative Financing to Help Homeowners Access Home Equity

By Published On: August 9, 20225.1 min read

Rising home prices in the U.S. mean many homeowners are sitting on significant equity. Some may need the cash but don’t want to sell their home or move. A number of startups have emerged to give homeowners alternative options to access the capital tied up in their homes.

San Diego-based company Splitero offers an unconventional way for homeowners to access their home equity without the added debt or monthly payments traditional financing solutions would require. The company, which launched in 2021 and has recently raised $5.8 million in seed funding and $1 billion in capital, offers homeowners cash in exchange for a share of their home. Homeowners can use the payment to do anything from paying off debt to opening up a business to renovating their home and can pay back the money anytime within a 30-year term. The company currently works solely in California but has plans to expand to other states.

Michael Gifford and David Zvaifler co-founded Splitero after over a decade of working in the residential investment market. Before founding Splitero, Gifford worked in distressed housing, where he had the idea for the company.

“We saw a subset of homeowners that weren’t served by our traditional financial system for one reason or another. Maybe they had lower income or FICO or no job whatsoever, but they were amassing this home equity and there wasn’t a good product that served them,” Gifford told Leverage.com. “So we started looking into the home equity investment space and saw a big opportunity.”

Splitero’s Home Equity Investment (HEI) means that if the home appreciates, Splitero’s share rises, too. If the home depreciates, Splitero’s share will depreciate.

An interactive calculator on the website gives a rough estimate of the amount for which a homeowner would qualify, based on their home’s worth (an evaluation process is conducted for each applicant). For example, if your home is worth $500,000, you may qualify for $65,000 from Splitero. Say this home appreciated by 3% per year for five years. At this point, your home would be worth $580,808 and Splitero’s share would be 21% ($124,014). Splitero has put safety caps in place in some cases so homeowners will not be in a position to pay excessive costs if the housing market skyrockets. If a homeowner does not sell or refinance their property in 30 years, Splitero can either offer an extension or another Home Equity Investment.

Let’s say the reverse scenario happens: Your home depreciates by 2% per year for five years. At this point, your home would be worth $452,381, and Splitero’s share would be 17% ($75,679). To take this to an extreme hypothetical scenario, if your home depreciated by 2% for 20 years, Splitero’s share would be 9% ($29,919), less than your original payment.

The company offers investments of up to $500,000. To qualify, the appraised value of the property must be between $150,000 and $5 million. Gifford said homeowners typically take payments between $100,000 to $150,000. Because homeowners are not making monthly payments, Splitero does not have income or employment requirements. This speeds up the application process and means that they can generally be processed in as little as 10 days.

Splitero has gained traction in the last 18 months as home prices have risen, while interest rates and economic uncertainty have also grown.

“As the difficulty to buy increases and rent prices also increase, you have a lot of people who own homes and aren’t interested in selling them, because where are they going to go? I think that’s the biggest problem we’re facing now,” Gifford said.

All these factors have caused people to seek out more ways to access the cash tied up in their property — which is often a person’s biggest asset.

Traditionally, there are a few ways homeowners can access home equity, but they come with restrictions. HELOCs (Home equity lines of credit) allow homeowners to borrow money on an as-need basis and then pay back the money at variable interest rates. These loan terms are usually between five and 10 years to borrow money, and then 10 to 20 years for the repayment period. However, this type of loan has strict requirements, such as a high FICO score and debt-to-income maximums, not to mention interest rate risk.

Another option is a reverse mortgage loan, where a homeowner can receive a loan, collateralized by their home equity in the form of monthly payments, a lump sum and/or a line of credit. The loan is repaid when the homeowner sells their home or passes away. However, this option typically comes with high fees and is only available for people who are at least 62 years old.

The homeowners Splitero serves are people who don’t have the option to get a HELOC.

“We have no minimum requirements for those,” Gifford said. “So if you don’t have a job, we can still work with you. If you have a lower FICO we can work with you. I would say those are kind of the traditional scenarios that we’re seeing.”

Since founding the company Gifford has noticed other trends in the clients they serve. One of the main customer types are people looking to pay off debt, including student loan, medical or credit card debt.

“We also see a lot of people who are uncertain about the economy but have made a great investment in their house and it’s gone up in value, and so they want to realize some of those gains,” Gifford said.

Many people also want to use the money for home renovations. “Especially during COVID, people realized that they want to renovate their kitchen or bathrooms or build additional square footage on the house,” Gifford explained.

As we enter a period of economic uncertainty, Gifford added that Splitero is designed as an alternative option to selling one’s house for cash during difficult circumstances. “When the economy goes down and people have to sell their houses, that’s a poor financial decision for most people long-term. And some people have to do that. We would love to step in and help those folks so that they don’t have to sell their most valuable asset,” Gifford said.

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