Entrepreneurs in Seattle have come up with an idea to help aspiring home buyers overcome the down payment obstacle: They’re offering down payments to those willing to be an Airbnb host for up to three years, renting out a room in their new homes.
Loftium is providing prospective home buyers with up to $50,000 for a down payment, but the buyer must be willing to continuously list an extra bedroom on Airbnb for one to three years. Homeowners also have to share most of the income they generate from that rental with Loftium during that time.
“It’s for the people who don’t have the parents to help, or the high income to save while paying rent,” cofounder Yifan Zhang told The New York Times. “They are just stuck trying to save for a decade or more before they give up.” Zhang says there are about 40 cities other than Seattle where they believe their service could help prospective buyers. She says they hope to expand to Chicago, Denver, or Raleigh, N.C., within a year.
Although the approach is different, other companies are looking to help fill the down payment gap. With many would-be buyers burdened with high student loan debt, mortgage financing giant Fannie Mae said this year it would be more forgiving of prospective home buyers whose employers or parents were helping pay down their student loans. “Many renters struggle to generate savings in the current environment of high rental rates and student debts,” says Jonathan Lawless, vice president of customer solutions at Fannie Mae. “As opposed to what happened in previous generations, there is almost a fear associated with it because they have this really big debt.”
Fannie Mae told The New York Times that it has an interest in working with Loftium as it expands to more cities on its down payment program, but it wants to first ensure there is strong enough demand for the service. Currently, buyers who use the program will be able to apply down payments only to mortgages financed by Umpqua Bank, but Loftium says it plans to offer a broader range of lenders soon.
By using Loftium, buyers must list their extra room year-round for up to three years, with eight “freebie” days reserved for their own use. Loftium determines the size of the down payment they’ll grant using an algorithm that predicts how much income a room can generate, The New York Timesreports. Homeowners then pay back Loftium through a revenue-sharing agreement. The company will collect about two-thirds of the monthly income generated. The company will not penalize homeowners if the room isn’t booked enough to generate the expected income.
“We are trying to put as little risk on the homeowner as possible,” Zhang says. “That money up front is yours as long as you abide by the contract.”
Homeowners who want to stop renting the room before the contract ends will be required to pay their share of the nights remaining as well as an extra 15 percent premium on that amount within a week, according to the contract. Loftium can put a second lien against the property if a homeowner fails to pay what is owed.