In a Nutshell
pros
- No monthly repayments
- No risk of losing your home
- Online application
cons
- Sharing a cut of your home’s appreciation
- Appraiser and escrow fees
- Processing fees
Point at a Glance
| Loan types: | Home Equity |
| Featured Loans: | “Point” home equity partnership |
| Repayment Terms: | 1-10 years |
| Maximum Borrowing Amount: | $250,000 |
| Minimum Credit Score: | None |
| Best for: | Homeowners who find they aren’t suited to home equity loans. |
Overview
Based in Silicon Valley, Point is disrupting the traditional home equity loans market with a new way of helping homeowners cash in on their home’s value. It doesn’t offer home equity loans (HELs) or home equity lines of credit (HELOCs). Instead, it pays the homeowner for a portion of your equity and shares in the home’s appreciation (or depreciation) when the homeowner sells their home or decides to buy back Point’s portion of the equity.
Best For?
Point’s service caters to homeowners who for one reason or another are at a disadvantage when it comes to traditional HELs and HELOCs. Point’s eligibility requirements are more flexible than for home equity loans, which can require a credit score of at least 700. It doesn’t include any monthly repayments, unlike HELs and other types of loans whereby the borrower must pay monthly principal and interest for the entire loan term. Because Point takes a cut of your home’s appreciation when you sell, it’s worth using the handy homeowner’s calculator to find out how much Point will cost you in different scenarios – and how this compares to home equity loan rates.
Types of Loans/Products
Point offers only one product, which it simply calls “Point.” Point isn’t a lender and it doesn’t offer loans. It buys into your property as a partner and takes a cut when your home appreciates. Point is an alternative to a home equity loan or second mortgage, a secured loan in which the borrower’s home is used as collateral. With a HEL, the lender lends the borrower money in return for a portion of their equity, and the borrower’s equity increases as it makes monthly payments. With Point, there are no monthly repayments, and Point keeps its share of the equity until the homeowner sells the property or buys out Point.
Here are some of Point’s notable features:
- No monthly payments and no interest rates
- Because it isn’t a loan, there are no down payments
- Processing fee of 3-5%
- To qualify, homeowners must meet certain conditions including debt-to-income ratio, credit score, and the housing market’s expectations
- The total cost depends on how much your home’s value changes. When your home appreciates, Point makes money – but only up to a certain limit
The Application Process
Because Point’s product isn’t a loan, the application process works slightly differently from that of a traditional lender. It involves the following steps:
- Check if you qualify online
Provide basic details about home and household finances, and show proof that you’ll retain at least 20% of the equity in your home after Point’s investment. Point’s automated system will instantly pre-approve or reject you based on the details you provide. This takes only 5 minutes.
- If pre-approved, Point will make a provisional offer
The offer is typically in the range of 5-10% of your home’s current value. You’ll be asked to complete a full application. The underwriting team usually reviews applications in 1-3 days.
- Get an appraisal
Schedule a time for a licensed appraiser to visit your home and give it a valuation. Point will share the appraiser’s report with you once it’s complete, which usually takes 5-8 days.
- Get your offer
Point will send you a final offer once the appraisal has been completed and it has received all your documents. The last pieces of business are for you to sign the Point Homeowner Agreement and for Point to file a Deed of Trust and Memorandum of Option on your property. This all takes about 7-12 days.
- Get your funds
Point should send you the funds within 4 days of closing
Pros and Cons
The main advantage to using Point is that it strips out all the downsides of a traditional loan. There are no monthly repayments and no interest, meaning you don’t have to stress about falling behind on your payments or, even worse, losing your home or other assets.
Having said that, there are some fees to pay at the beginning, namely processing fees and the costs of escrow and independent appraisal. In most cases, the biggest cost is the cut you give to Point when your share appreciates, instead of you pocketing the increased value of that home equity.
Rates and Fees– The Bare Basics
Point charges a processing fee of 3-5% of the value of the amount it invests in your property, plus escrow and appraisal fees. For example, if it invests $100,000 in your property and charges the minimum 3% processing fee plus around $600 for appraisal and $500 for escrow, you’d pay $4,100 up front. Aside from that, the only cost is the cost of paying Point its portion when you sell your home or buy out Point’s share in your property.
Point offers a useful calculator help you calculate these costs. The following table gives a few examples. It assumes a term of 5 years, home value of $400,000, a Point investment of $40,000 (10%), a risk-adjusted home value of $340,000 (or risk adjustment of 15%, although Point can apply an adjustment of up to 20% to protect its investment).
| High Appreciation | No Appreciation | Depreciation | |
|---|---|---|---|
| Future Home Value | $535,300 | $400,000 | $300,000 |
| Homeowner Share | $456,200 | $348,000 | $268,000 |
| Point Share | $79,100 | $52,000 | $32,000 |
| Equivalent APR | 14.9% | 6.4% | -3.3% (you repay Point less than it paid you) |
Repayment Terms
Terms are for 1 to 10 years. You can repay Point the original investment amount and a share of the home’s appreciation when the home is sold, refinanced, or when the term limit is reached – whichever comes first.
Help & Support
Point is a completely online platform. It offers customer service via live chat during regular U.S. business hours, through a contact form on its website, or by email. If you get pre-approved, a dedicated Point representative will contact you to go through the rest of the application process.
FAQ
Is Point added to the title of the property?
No. Point files a Deed of Trust and Memorandum of Option on your property with your county recorder. In the event you default on your property, Point can exercise the option and initiate a sale.
Does the homeowner have to live in the property?
No. But a penalty fee will be charged at the end of the term if you live in your property upon closing with Point and then turn it into a rental during the term.
How much does the homeowner owe Point if they choose to repay before the end of the term?
The amount is calculated using the property’s value at the time, as determined by an appraisal, automated valuation model (AVM), or a broker price opinion (BPO). If you’re refinancing, Point can also use your lender’s appraisal.
What happens if the home depreciates?
Point will get some share of the home’s equity, although it may receive less than it invested in your property.
Who is behind Point?
Point’s investors include big names in venture capital and seed funding: Andreesen Horowitz, Bloomberg BETA, Greylock Partners, SV Angel, Ribbit Capital, and JPMorgan Chase’s Center for Financial Services Innovation.
Summary
Point represents the first major disruption to the second mortgage market in more than 30 years. Then, the Tax Reform Act 1986 left a loophole whereby homeowners could deduct all interest from home equity loans from their taxes.
Today, Point has created a unique and innovative product whereby homeowners need not pay any interest whatsoever to borrow against their home. In fact, Point doesn’t require homeowners to “borrow” at all. Homeowners simply agree to have Point invest in their home, then pay Point a cut of their home’s appreciation in value when they sell, refinance, or reach the end of their term.
Physical Address
Point Digital Finance, Inc.
522 Ramona St.
Palo Alto, CA 94301
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