Innovation continues to flow into the financial services sector, thanks to new Web 2.0 technologies that are making it easier than ever before to share financial data and participate in social lending networks. Of course, prior to the whole subprime lending crisis and ensuing credit squeeze, this would have seemed like a slam-dunk idea: P2P lending for people who can't afford down payments for homes. The basic idea is brilliant: match people who have money with people who don't have money, and help deserving Americans buy their first homes.
There are a lot of complicated tax considerations here, as well as a lot of complex financial modeling to see how much you would have to pay, so I can't say for sure whether this P2P lending network makes sense for everyone. On the surface, though, it seems like an easy way to buy a home without a huge slug of cash up front. As a simple back-of-the-envelope calculation: Say a home in the Bay Area or New York metropolitan area costs close to a half-million dollars, and assume a required 20% down payment, making the total cash outlay required close to $100,000. (And that doesn't even include closing costs!) That's a big chunk of change for anyone who isn't an investment banker or hedge fund manager. But what if you could call up a "rich investor," who would front you the money, allow you to live in the home while making mortgage payments the same way you would make rental payments, and not demand any payback or interest for a period of 3 to 7 years? As I understand it, that's the basic premise of Home Equity Share.
As always, a big hat tip to Springwise for continuing to point out the latest and greatest in Finance 2.0 innovations.
[image: Home Equity Share]