Patch Homes unlocks home equity

Count Sahil Gupta among the entrepreneurs who turned a personal experience into his next business opportunity.

Mr. Gupta is cofounder of Patch Homes, a provider of home equity financing with no monthly payments or interest. Patch Homes shares in what they hope is the future appreciation in the home’s value.

Before founding Patch Homes with partner Sundeep Ambati, Mr. Gupta worked at both traditional institutions and fintech startups. From 2008 through 2011 he was with Mellon Capital before moving on to a trio of fintechs. That combination of experience allowed him to see that startups across many financial verticals were using technology to look at old tasks in fresh new ways.

Sahil Gupta

Mr. Gupta and Mr. Ambati were speaking one day about the challenges of home refinancing and how hard it is to get a refi loan if you do not meet specific criteria. Hard money lenders charged exorbitant rates and it was nearly impossible to complete it online.

Yet many people have a large source of capital that has been mostly untapped, Mr. Gupta said.

“People have equity in their house but no money in the bank. We are bridging the gap between the equity in their home and the lack of money in their bank account.”

Patch Homes works with borrowers with average credit scores ranging between 620 and 700 via a simple five-step process, Mr. Gupta said.  Applicants provide information on themselves, their home and their financing needs and quickly receive an initial offer. A home appraisal is scheduled and then a final offer is made. Should the offer be accepted, the funds are directly deposited into the borrower’s account. Repayment occurs when the home is sold, a cash-out refinance is completed or at any time before the contract expires. Maximum contract length is ten years and there are no early payment penalties.

Mr. Gupta said the country is seeing a strong revival in home values, especially in California, where 44 per cent of national real estate wealth resides. San Jose, San Diego, San Francisco and Los Angeles are all strong, as are Seattle, Bellevue, Chicago and many parts of Ohio and New York. That bodes well for Patch’s model, where they share in the upside by taking a percentage of the home value gain. They also have skin in the game, for if values drop, they lose too.

“We give money today and if the house’s value goes up, we both win,” Mr. Gupta said. “We both lose if it goes down.

“This is a long-term play. If you invest for the long-term, you normally do okay.”

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