A new Canadian startup is looking to shake up the homebuying process by allowing homeowners to make their next purchase before the sale of their current home.
Fundible, which officially launched today in Alberta and Ontario, boasts 100% assured financing so that a homebuyer can make a financing-free purchase offer without having to worry about whether the funds will come through from another lender. It expects to launch in B.C. in early- to mid-2022.
“The problem Fundible solves is it gives homebuyers an option to safely write a purchase offer without a financing condition,” explains co-founder Jason Henneberry, an entrepreneur in Canada’s mortgage industry. Henneberry is also Director of Technology at Tango Financial and founder of DocAssist, MortgagePal and LenderSpotlight. “The borrower and property are fully underwritten before they write an offer, with a 100% guarantee that financing won’t fall through.”
There’s also no obligation for the borrower to use Fundible’s financing, which is provided through its exclusive funding partner, Calvert Home MIC.
“The borrower is free to obtain their mortgage with any institution they like, and they can work with their broker to source the best overall rates based on their unique circumstances,” Henneberry notes. “Fundible simply guarantees the purchase with a back-up mortgage in the event the borrower is not able to obtain traditional financing.”
This is a relatively new concept in Canadian real estate, and one that could prove attractive to homebuyers in today’s competitive housing market. One of Fundible’s selling points is that financing-free offers are more likely to win against competing bids with conditions.
Dean Koeller, President of Calvert, said the company is excited to be involved in bringing an innovative and new financing solution to the Canadian market.
“At Calvert, we’re committed to finding new ways we can enhance the financing experience for brokers and their clients,” he said. “Fundible’s approach is very much in line with our philosophy and simplifies the homebuying experience and makes it easier for buyers when it comes to negotiating their new home purchase.”
What’s the Catch?
This level of convenience and security for homebuyers does come with a small price.
Fundible charges a valuation fee of $259, which covers the cost of underwriting and property valuation. It also provides a “no/low-doc” client validation and in-house appraisal so that approvals can be turned around in hours, says Henneberry.
“The $259 fee includes up to three property valuations, which gives the client options for writing offers on multiple properties in the event they don’t immediately win the bid for the first home,” he said. “If they need to go to a fourth round, we charge $99 for additional property valuations.”
In the event the borrower can’t secure alternative financing from their preferred lender and requires a Fundible mortgage to close the deal, the fixed rate for a six to 12-month mortgage at 80% loan-to-value would be 7.99% with a 1.5% lender fee, Henneberry explains.
Since the term is completely open with no prepayment penalties, Henneberry said borrowers are incentivized to pay out their Fundible mortgage as soon as possible.
“We provide an interest credit back to the borrower if they can pay out our mortgage within the first 30-90 days, bringing the effective rate down to the low-4% range,” he added.
The concept has already gained traction in the U.S., where Henneberry says at least four companies have raised over $2 billion in funding over the past three years to bring similar products to market.
While there are no Canadian companies with an identical business model, Properly could be described as the closest competitor. Similarly, Properly allows homeowners to make a purchase offer prior to the sale of their home, but instead does so by unlocking the equity in their current home.
“Properly is purely focused on a ‘buy-before-you-sell’ strategy and the real estate transaction. They are using the concept as a lead generation tool to build a real estate brokerage,” Henneberry said. “Essentially, offering clients an ‘assured sale’ so they can qualify for financing on their new purchase. Fundible also solves the same problem, but our option is more like a ‘finance-before-you-sell’ product that doesn’t require the homeowner to work with a specific brokerage for the sale of their home.”
We asked Henneberry for some more specifics about the service. Here’s what he said…
- Are there restrictions on the type of mortgages that qualify?
Fundible’s service is limited to uninsured mortgages, meaning those with a minimum 20% down payment.
- How much financial backing does Fundible currently have to underwrite its mortgages?
Calvert has provided Fundible with a $30-million credit facility, which is used to guarantee purchases on a one-to-one basis. “When we commit to holding $500,000 for someone, we are putting those funds aside from the credit facility to back the deal until we are released of our commitment, so there’s no risk Fundible will not be able to advance the mortgage,” Henneberry said.
- What’s the process once the buyer accepts the purchase offer?
The borrower then has 24 hours to activate their guaranteed Fundible mortgage, based on the initial commitment letter. Once the guarantee is accepted by the borrower, Fundible charges 10 basis points on the loan amount to hold the funds for up to two weeks while the borrower secures traditional financing, extended in two-week increments at $99 per extension. Once the buyer secures their preferred financing, Fundible is released of the guarantee and cancels the approval. More details about the process are available on Fundible’s website.
- Can mortgage brokers take advantage of the service?
Fundible will only work with select partners who “truly understand the value proposition and want to use Fundible to enhance their top Realtor relationships and grow their referral networks,” Henneberry said. As such, Fundible charges a $1,500 fee per Realtor, which is paid for by the mortgage broker. This provides access to the platform, training and sales support.
“Part of what makes Fundible so appealing is that the product line-up allows mortgage brokers to truly differentiate their services and it gives them an edge over the competition,” Henneberry said, adding that response from the broker community has so far been very positive.