Introducing RenoFi Renovation Loans
Because financing shouldn't be the hardest part of renovating
Rob, Lee and I started RenoFi in early 2018 because of the belief that we could make a difference in millions of homeowners’ lives by empowering them to transform their homes into spaces they love with a smart and affordable financing solution. Little did we know that world events would bring people’s satisfaction with their home into such sharp relief.
Today, we are announcing that we raised our Series A of $6.4M led by Brendan Dickinson of Canaan, along with participation from Comcast Ventures and First Round Capital. It’s also worth noting that Josh Kopelman of First Round Capital led our seed round, which we had not announced previously.
Renovation finance is broken
If you are buying a house in 2020, there is a very good chance that the home you are buying is at least 40 years old. When you purchase an older home, you likely know there are elements that you want to eventually remodel.
But renovating is expensive. Homeowners are often shocked to learn that their renovation wishlist can cost hundreds of thousands of dollars (this is the moment when they realize Chip & Joanna’s HGTV show shouldn’t be classified as reality TV).
Paying for that renovation is a whole journey in and of itself. Every other major purchase we make in our life has a smart and easy financing solution attached to it. Buying a car? Get an auto loan. Buying a house? Get a mortgage. Going to law school? Get a student loan. Each of these is a purpose-built financial product for a specific use. Remarkably, until now, this has not existed for home renovations.
The two most popular existing financial products used to finance home renovations - Cashout Refinance or a Home Equity Loan - are not designed for renovations. While they can work well for long-term homeowners (those who’ve been in their homes 10+ years), they don’t serve recent homebuyers who haven’t yet built up equity.
What about recent homebuyers who haven’t had time to build up equity yet? Simply put, recent homebuyers are stuck between a rock and a hard place as it can take a decade or more to build up the equity needed to tackle their renovation wishlist. So what do homeowners do? 87% of them use cash - borrowing from retirement accounts, draining emergency savings, borrowing from friends and family. Others rack up high-interest debt with personal loans and/or credit cards. And far too many begrudgingly reduce the scope of their project, tackle their renovation wishlist piecemeal over many years while living in a never-ending construction zone.
This was the situation my wife, Megan, and I were in when we decided we’re fed up. It became clear that by the time we could afford to make our home what we wished, our three kids would be nearly ready to leave for college. You only raise your family once, and we were determined to find a better way to finance our home renovation so we could raise our family in a home that better met our family’s needs - and truly felt like ours.
Introducing RenoFi Loans
When you renovate, typically your house goes up in value. How much it will increase certainly varies based on each individual situation (we help with that too), but speaking in averages, for every $100k invested, homeowners we’ve worked with see about $75k in increased home value. What if you could access this increase in value upfront, alongside any existing equity you already have in the property? RenoFi Loans do exactly this. They are renovation-specific versions of a Home Equity Loan or Cash-Out Refinance with one key difference: the appraisal is based on the future home value, not the current. That increases the homeowner’s borrowing power, often by 3x or more, AND ensures they get the lowest rate possible.
One alternative option, the Construction Loan, originally designed for buying a plot of land and building a house from scratch, has this feature as well. But when you talk to folks in the primary residence home renovation industry, you learn quickly that just about everyone hates Construction Loans - homeowners and builders alike! For the most extreme renovations, they are necessary. But for 9 out of 10 home renovations, the excessive and cumbersome controls are overkill. And they are expensive, often requiring homeowners to refinance into mortgages with above-market rates and significantly higher closing costs than a typical mortgage.
We designed RenoFi Loans to provide the ease of a home equity loan with the borrowing power of a construction loan. Homeowners get the best of both worlds and tons of helpful insight to make the right decisions before the hammer hits the nail.
RenoFi empowers lenders
When we first started RenoFi, we called over 500 banks and credit unions of all sizes to understand how many were offering renovation financing and to understand if any were lending based on the after renovation value (ARV). We found out that more than half of the community banks we called did not have such capabilities, and over 90% of big banks and credit unions lacked ARV lending capabilities.
RenoFi’s platform makes it easy for any lender to offer the next generation of renovation loans, enabling them to better meet the evolving needs of their customer base. Our renovation underwriting platform handles everything from start to finish, allowing our lending partners to focus on their core competencies using their credit terms and without the need for any additional overhead.
RenoFi’s renovation underwriting platform protects not only the lenders, but also the homeowners. The detailed feasibility analysis and contractor diligence done prior to the closing of the loan ensures homeowners don’t take on a project that is doomed before it even starts.
Just this week, we announced our partnership with Ardent Federal Credit Union. We are so thankful to have been introduced to Rob, Anthony, Alletta, and the entire team at Ardent back in late 2018. They immediately shared our vision for the future of renovation finance and how this solution could benefit Ardent’s members. It’s been amazing building this program with them over the past year and a half, and we couldn’t be more fortunate to work with this team of consummate professionals.
Thanks to our success with Ardent, we’ve been able to bring RenoFi Loans to many other credit unions around the country with more to follow. Aligning with the credit union movement has been one of the many pleasant surprises since starting RenoFi. The credit union motto of “people helping people” is not just lip service — it’s who they are, and it’s what has made credit unions the perfect partners to make RenoFi Loans a reality.
We often talk internally at RenoFi about the “Win-Win-Win” we are creating. With a RenoFi Loan, everyone wins. Homeowners are able to make their renovation dreams come true without having to make a suboptimal financial decision (see our reviews page for testimonials). Our Credit Union partners acquire new members and gain exclusive access to high-quality assets that they otherwise couldn’t. Importantly, stakeholders in the renovation ecosystem, such as general contractors & realtors, close more deals with less hassle and in record time.
Pandecorating, suburbanization & the exploding work from home movement
America’s aging housing stock coupled with the HGTV effect & record-low inventory levels had positioned the primary residence home renovation market to be in growth mode with no end in sight for the foreseeable future — which says a lot considering we are talking about a $280,000,000,000+ market.
But when COVID-19 hit, all bets were off. The pandemic has changed just about every industry in some manner — many for the worst but some for the better. Though it’s still early days, from our vantage point, the pace for primary residence renovations, especially in suburban areas, has picked up considerably. Demand for RenoFi Loans hit an all-time high in May, and June is on pace to smash that.
Many pre-pandemic renovation plans are moving forward, but we are seeing even more motivated homeowners now. Obviously, everyone has had ample time locked in their home to think about what they want to change. But the changes we are seeing run deeper than that. We’ve all read about the scores of urban dwellers moving out of the cities, and these folks are often finding homes that need some renovation love. Others experiencing financial hardship are making the prudent decision to consolidate multiple generations of their family under one roof. And finally, also widely reported, former members of the commuting army are now free to work from home permanently, and so can and must rethink both their geography and their home office.
While Americans are certainly eager to get back to the life they had pre-pandemic, it’s clear that elements of the stay-at-home economy are here to stay, and those are drivers for the entire renovation industry. We feel fortunate that RenoFi Loans are able to make this transition a bit easier for America’s homeowners.
On behalf of everyone here at RenoFi, we want to thank our investors for aligning with our vision and empowering us to solve this problem for homeowners across the country. And if you are reading this as a homeowner who is contemplating a renovation, it’s never too early to engage with us to learn about how RenoFi Loans may be able to help you. Just visit www.RenoFi.com and get started.
- Justin Goldman and the RenoFi team