No Mortgage Down Payment? No Problem!

by Raymond Pucci 0

Airbnb to the rescue! Well, sort of. An enterprising, Seattle-based company, Loftium, is advancing new homebuyers their mortgage down payments in exchange for the buyers’ agreeing to become Airbnb hosts. As the following article explains, the Airbnb rental income becomes the cash flow to back the loan.

“If only we had the down payment” may be one of the most frequent complaints among aspiring home buyers in cities across the country. Yifan Zhang, a 29-year-old entrepreneur who often hears this lament among her friends, has come up with a service that tries to help.

When she bought a townhouse in Seattle with her husband last summer, she knew that the spare bedroom could generate extra income on Airbnb. But when she learned just how much they could collect each month — enough to cover the mortgage, and sometimes more — her entrepreneurial instincts kicked in: Why not front would-be home buyers money for a down payment, and then collect a share of their Airbnb rental income in return?

That was how Loftium, a service in Seattle, came about: It will provide prospective home buyers with up to $50,000 for a down payment, as long as they are willing to continuously list an extra bedroom on Airbnb for one to three years and share most of the income with Loftium over that time. “It’s for the people who don’t have the parents to help, or the high income to save while paying rent,” said Ms. Zhang, who founded Loftium with Adam Stelle, another entrepreneur, and who has already had about 200 Airbnb guests in her townhouse. “They are just stuck trying to save for a decade or more before they give up.”

Executives at Fannie Mae, the government-controlled mortgage finance giant, also noticed that some young people perceived homeownership as an impossibility, said Jonathan Lawless, vice president of customer solutions at Fannie Mae. In response, Fannie considered creative ways to make it easier for aspiring homeowners to buy when burdened by student debt. This year, for example, it said it would look more forgivingly on prospective home buyers whose employers or parents were helping pay down their student loans.

The on-demand economy has become firmly embedded with consumers, and is now spawning other services as well. Loftium’s business model has creatively identified a financing channel not previously available. While Airbnb is immensely popular now, long-term success for Loftium will depend on steady occupancy rates and the continued ability of the borrower to make their monthly mortgage payment. Meanwhile, Airbnb is tussling with local regulators over occupancy taxes which could impact the rental host’s revenue. Still, there are many markets that have high demand for temporary lodging for both business and leisure travelers, and that is where the opportunities lie for this down payment financing service.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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