The Fintech / Housing Nexus: The Implications of Startups Transforming Access to Homeownership

Purchasing a home is a complex and often opaque process – and a process that is increasingly out of reach for millions of individuals and families. That was certainly true for Bryan Young’s mother.

"My mom worked hard for years and saved to purchase her dream home in late 2006,” Young recalls. Just two years later, the Great Recession cratered the US economy, starting with the housing market.“ In a flash, my mom had gone from a proud new homeowner to facing foreclosure.”

The experience led Young, a serial entrepreneur who had already founded four successful companies, to launch Home Lending Pal, a startup that’s working to democratize the homebuying process. Home Lending Pal helps would-be buyers like Bryan’s mom get a better understanding of what their future monthly payments will be – preventing the kind of problems with unclear loan terms that happened so frequently in 2008.

Homeownership is increasingly out of reach for the everyday person in the US. The price of an average US increased by 13 percent in 2020 alone, continuing a trend of home prices outpacing wage growth. A recent report found that there is not a single county in the US where a full-time minimum-wage worker could afford a two-bedroom rental home.

Everyday people and communities have been hit hardest. Black, Indigenous, and people of color start the homebuying process with less wealth (despite their income level), find it harder to grow equity in their homes, and are denied mortgage loans more often, in an echo of the racist redlining practices of yesteryear. Housing discrimination extends transgender people, people who have been involved with the justice system, and people with disabilities.

Something needs to change, and as Bryan Young’s story illustrated, that change might come from fintech. Over the past decade, a wave of fintech startups that has begun to transform the housing market, making the process of finding, buying, refinancing or selling a home simpler, more transparent, less costly and increasingly digital. While companies like Zillow, Trulia and Redfin have made multiple listing service, neighborhood and school level data more transparent and useable to the average buyer, fintech is also transforming the speed of home sale transactions with firms like Opendoor providing near instant offers, while firms like Rocket Mortgage by Quicken Loans digitally processing home loans in minutes. 

However, many of these “housing fintech” startups lack an explicit impact focus. We are now seeing a second wave of housing-fintech innovation, many at the seed or pre-seed stage, that do make a point to bake social impact into their business model, and explicitly help everyday communities.

We came across several of these startups as we recruited for our Finance Forward US 2020 accelerator, a collaboration with MetLife Foundation and PayPal focused on innovation that improves financial health. We found many startups that are focused on improving housing outcomes for everyday people, across the home ownership “life cycle”:

• Preparing to buy a home - learning about how to go through the homebuying process
• Selecting a home - searching around to find the best home with the best information
• Financing a home - getting a loan or mortgage in a non-predatory way
• Maintaining a home - insurance is a mystery to many people, but it will only become more relevant - for instance, as climate change intensifies, millions of homes will be impacted and at risk in new and unexpected ways

Here’s some of what we’ve seen in the early stages of our research. Several of the startups are working across multiple steps of the homeownership life cycle, and offering solutions that are contextualized for everyday people and communities.

• Home Lending Pal (preparation, financing) helps people like Bryan’s mom understand the process behind financing a home, which can be very opaque. It uses artificial intelligence from a variety of sources to simulate underwriting to help consumers become more purchase ready while providing end-to-end solutions that automate and digitize lending and home buying operations for banks, credit unions, and non-bank lenders. HLP securely holds the consumer data, sharing it with lenders only at the request of empowered consumers. 
• Hurry Home (financing, selection) is reimagining the way houses under $80K are financed by providing a modified rent-to-own model that enables people in households who make 40% less than the local median income to earn and save their way to full ownership of their house in 10 years. Hurry Home does this by helping people make monthly payments close to market-rate rent - using alternative data points and having an investor hold the property in escrow.
• Manzil (financing) is creating halal (Shariah compliant) financial products, including mortgages, for the Muslim community, which has traditionally been underrepresented in mortgage markets and financial services as a whole. At the same time, Manzil offers investment solutions to help the Muslim community build wealth. 
• Cher (preparation, selecting, financing) is reimagining the home buying process from scratch, across the life cycle of buying a home - centered around the idea of “co-ownership” of homes by multiple people or families (“cher” is pronounced like “share”). More than 1.5 million people co-own homes today, and it shows a lot of potential for increasing the power of homeowners relative to banks or lenders. The Cher platform creates a simple and transparent co-ownership process that helps reduce the financial burden of home ownership.
• Digs (preparation, maintaining a home) is a financial platform that helps consumers reach homeownership and continue to build wealth through their home. Through its product Digs Saver, an early connection point to potential borrowers, Digs is empowering consumers to take better control of the home ownership process, track savings goals, and learn about homeownership much earlier than other solutions. By educating consumers earlier in the process, Digs is reducing the barrier of financial literacy and widening access to home ownership.

This is just a snapshot of the greater housing-fintech nexus and its role in financial health and economic opportunity. In 2021 and beyond, we see potential for startups building tech solutions with and for everyday people and communities - across the “homeownership life cycle.”

We see particular potential in tech startups that explicitly focus on everyday people and communities  – that better meet the needs of people historically pushed out of the housing market, advancing an anti-racist, intersectional and equity-focused approach to innovation. We look forward to learning about fintech solutions addressing the unique needs and opportunities of communities across intersections, including but not limited to race, ethnicity, gender, income level, disability, geography.

As we look at 2021 and our future, everyday people are on the cusp of an eviction crisis, are experiencing challenges to meet everyday needs, historical low homeownership rates, and lack of opportunities to build wealth. Homeownership holds a key role in the racial wealth gap. The Urban Institute found that “Eighty-seven percent of white homeowners bought their first homes before age 35, compared with only 53 percent of Black homeowners. Not only are Black households less likely to buy their homes young, 18 percent of them never own a home before turning 60 or 61.” Closing the racial wealth gap is a part of building an economy marked by equity and economic justice, and we believe that accessible and affordable homeownership remains an important element of this future. Solutions at the housing-financial health nexus hold a role, they are a part of the change needed to a series of much larger systems and cultural challenges. 

Reach out to us if you’re interested in learning more or supporting a more equitable housing-fintech nexus, closing the racial wealth gap, and building economic justice. We’re always looking to build partnerships, to collaborate, and to center the voices of everyday people. There is a lot of opportunity to work together.

*This conversation is focused on the housing-financial health nexus and its potential, but it is important to recognize that closing the racial wealth gap and building economic justice is complex and not solely about homeownership and tech solutions. Collaborations across organizations and institutions in tech and non-tech spaces are important and needed.