Housing startup Divvy Homes announced a $110 million Series C funding round – headlined by Tiger Global Management – bringing its total debt and equity raised since 2017 to more than $500 million.
The Divvy Homes business model is aimed at boosting homeownership: Divvy purchases the home, then rents it back to the interested party for up to three years while they build their equity, credit, and savings.
It’s also not buying homes and looking for hopeful renters. Customers pick out a home and Divvy purchases it on their behalf, with the renter contributing up to 2% of the home value.
For the new renters, approximately 25% of each subsequent monthly payment goes toward saving for a down payment, setting customers up to apply for a traditional mortgage when they are ready. A customer builds up to 10% of the value of the home over their three-year lease, but can buy the home at any time, according to the company’s news release.
Led by Chief Executive Officer and cofounder Adena Hefets, Divvy serves 16 markets, including Atlanta, Dallas, Phoenix, Miami, San Antonio, and Houston. In May 2019, Divvy Homes launched a new streamlined mobile application that uses artificial intelligence to create a dynamic application process personalized to each buyer’s unique financial situation. With this model, the company assesses customers based on how mortgage-ready they are predicted to be in three years, rather than determining their ability to get a mortgage now.
Making housing more affordable by bridging the affordable supply gap
In the last few years, the number of existing single-family homes for sale has decreased. But home prices have increased. To make homeownership a possibility for everyone, there needs to be a higher supply of affordable homes.
Presented by: Fannie Mae
Despite historically-low mortgage rates in the face of the COVID-19 pandemic, many banks began tightening underwriting requirements for approvals. This forced a myriad of potential homebuyers, eager to take advantage of the low rates, to reconsider buying or being outright denied by lenders.
Hefets hopes the Divvy model will give people a roof over their heads in a time in history when home stability is crucial.
“At the start of the pandemic, we made a commitment to help and support as many future homeowners as possible,” Hefets said in a statement. “During COVID-19, new mortgages became difficult to secure as banks tightened underwriting requirements for approvals. As a result, families were locked out of homeownership opportunities during a global pandemic — a time when they needed safety and shelter most.”
Hefets added that she plans to expand Divvy services to more than 20 markets by the end of the year.
Alex Rampell of Andreessen Horowitz, one of Divvy’s chief investors, said Divvy has proven most helpful to teachers, nurses, and other essential workers during the pandemic.
“It’s been inspiring to watch Divvy set so many on a path to homeownership that works for them,” Rampell said. “Divvy has created a new category of homeownership that addresses the changing American household, providing a safe way to save and build wealth for those who cannot access a traditional mortgage.”
