Patch Homes Review: Is a Shared Equity Contract Right for You?
Patch Homes provides an alternative, debt-free approach to the standard home equity loan by offering a shared equity loan or shared appreciation mortgage. You won’t pay an interest rate but will pay the loan back by sharing profits from real estate appreciation.
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Patch Homes has rebranded to Noah. To learn more about Noah and other options, check out our home equity sharing companies guide.
Borrowing against the equity in your home can be a good way to access funds you need to pay for big purchases, college expenses, or home improvements. But most home equity loans require you to make monthly payments. Patch Homes works differently.
Patch Homes offers a shared equity contract. Instead of paying a monthly payment or paying interest for the privilege of borrowing, you instead agree to let Patch share a portion of profits that come from your home’s rising value.
This Patch Homes review will help you decide if the lender is right for you.
In this review:
- Getting Financing Through Patch Homes
- Basic Information: Rates, Terms, Fees & Limits
- The Benefits of Patch Homes
- The Downsides of Patch Homes
Getting Financing Through Patch Homes
When you obtain a shared equity contract through Patch Homes, you can buy out Patch anytime without any penalty or early exit fees. In addition, the final payment comes due when your contract up to 10 years ends, you sell your house, you move out of your home, or you take a cash out refinance loan.
Patch banks on your home going up in value, so if your home goes up in value, Patch shares in the appreciation with you. If your home goes down in value, Patch shares in the depreciation with you, and ultimately you patch out for less than the original investment.
Because Patch Homes makes money when your home goes up in value, not when you make monthly payments, your credit score doesn’t matter as much as when you apply for a home equity loan. In fact, it is possible to qualify for a loan with a credit score as low as 550.
However, Patch does look at some financial factors to determine if you qualify, and what percentage of your shared appreciation you will have to pay. These factors include the following:
- Whether you are employed with a dependable income source
- Whether you have enough income to pay off debt you currently owe
- Whether you have at least 3 months of savings to cover expenses
- Your credit history and whether you have a history of bankruptcies or collections
- Whether you live in your home and use it as a primary residence
- Whether you perform necessary home updates and home maintenance
- How much total debt you carry
- The amount of equity you have in your home
You also must have your name on the property title to borrow, you must not owe more than 85% of your home’s value on existing loans, and you must not be using your property for commercial purposes.
Patch also currently operates only in California and the state of Washington. However, Patch will be expanding to Utah, Colorado, and Oregon next month.
Basic Information: Rates, Terms, Fees & Limits
Patch Homes offers financing at 0% interest—and you make no monthly payments on your loan when you’ve borrowed. This doesn’t mean you will pay nothing at all for your loan, though. You will pay a portion of your home’s future appreciation to Patch Homes—and there’s no cap, so you could end up paying a lot of money to Patch if your home skyrockets in value.
The amount you can borrow from Patch Homes is determined by your home’s value. Generally, you can borrow between 5% to 20% of your home value through Patch. So, if your home was worth $500,000, you could borrow between $25,000 and $100,000 at most. Patch will not offer more than $250,000, and it allows financing only up to 85% of your loan-to-value ratio on a post-financing basis.
Funds borrowed from Patch can be used for any purpose you’d like. But you’ll have to repay the investment either when you move out or sell, when you take out a cash out refinance loan, or if your contract of up to 10-year with Patch expires.
>> Read More: Is a Cash Out Refinance a Good Idea?
The Benefits of Patch Homes
Patch Homes provides some significant benefits to borrowers, including:
- The ability to borrow with no monthly payments and without paying interest
- The opportunity to share the risk of falling property values
- The chance to diversify your portfolio if much of your money is invested in your home
- An easy and quick qualifying process
- The chance to pay back less than you borrowed due to the depreciation of your home’s value—or to get financing at 0% interest and pay back exactly what you borrowed if the home value stays the same
- You can repay Patch at any time with no prepayment penalties
- The process is quick, with many borrowers getting funds within just two weeks of approval
- The chance to borrow even with imperfect credit, as Patch does more comprehensive underwriting than just looking at your credit score
>> Read More: Home Equity Loan and HELOC Requirements
The Downsides of Patch Homes
Unfortunately, there are also some downsides to Patch homes that you need to consider:
- You could end up paying more than you would with a traditional home equity loan if your home goes up significantly in value
- You do not have to pay back your full investment amount if the value of the home goes down by expiration date
- The percentage of future appreciation you’re charged depends on the value of your home and the amount of equity you’re cashing out. Patch does take that into account while viewing your financial profile, since many homeowners still have a mortgage and other debt payments
- There’s a one-time service fee charged up front when you take out an equity contract. The fees come out of the closing proceeds and not out of pocket for the homeowners
Bottom Line: Is Patch Homes Home Equity Sharing Right for You?
If you live in California, want to tap into your home’s equity without paying monthly payments or interest, and you don’t mind giving Patch Homes a share of the future appreciation of your property, then Patch Homes could be a great choice.
Just be aware that if your home’s value goes up significantly, your Patch Homes equity sharing contract could end up costing you much more than a traditional home equity loan would have cost.
To compare Patch Homes to similar companies, check out our home equity sharing agreements page. If you’re looking to obtain an ongoing source of cash flow from your home’s equity, look into a home equity line of credit instead.
Author: Christy Rakoczy