For decades, little has changed when it comes to the way homeowners borrow money. So it’s impressive to find a technology-oriented lender who is truly revolutionising the home loan industry.
Founded in 2018, Figure uses blockchain technology and artificial intelligence to approve home loans in minutes and finance them in five days. Anyone who has borrowed a mortgage or Home Equity Line of Credit (HELOC) knows that the traditional loan closing process takes much longer than that, typically 30 to 60 days.
Figure’s primary service is a hybrid home equity loan and line of credit. Here’s what you need to know about it, including how Figure differs from traditional mortgage lenders.
Figure Home equity line
Before explaining what Figure offers, it’s worth pausing to summarise the difference between traditional home equity loans vs. HELOCs.
A home equity loan is a mortgage, usually a second mortgage, against your existing home with a fixed loan amount and a fixed term. Rather, a HELOC is a revolving line of credit that homeowners can draw on as needed, up to a maximum credit limit.
Technically, Figure’s home equity line is a HELOC. But it does include some unusual limitations on line of credit withdrawals and is not as flexible as a typical HELOC. Borrowers can withdraw the original loan amount repeatedly during the withdrawal phase (the first two to five years).
The Figure Home Equity Line allows you to obtain a loan ranging from $ 15,000 to $ 250,000 against your home’s equity. The figure allows for a maximum combined loan-to-value (CLTV) of 95%, which is high by industry standards. But your personal limit depends on your credit score and Figure’s lien position.
Figure’s loan terms are five, 10, 15 or 30 years, repaid based on a fixed payment schedule. There is an initial withdrawal phase between two and five years, depending on the term of your loan. During this time, you can withdraw extra money from Figure if you wish.
After the withdrawal phase is over, you can no longer borrow additional money and the loan switches to a locked repayment phase that works like a standard mortgage.
The Figure Home Equity Line is available in most states, in addition to the District of Columbia, and the program is expanding each year. For a list of available states, see the footnote at the bottom of the site of Figure.
Figure’s application process is fast and efficient. Here’s what to expect when applying for a figure home equity line.
Step 1: Complete the pre-qualification form
To begin the process, complete the Figure online pre-qualification form. They only ask the bare minimum to make sure you qualify:
- Speak to
- Email address
- Date of birth
- Collateral property address and property type
- Purpose of the loan
- Household income
Next, Figure performs a soft credit check . They require a minimum score of 620 in most states and 720 in Oklahoma. If you qualify, they quote you an initial fee, an interest rate, and the maximum loan amount.
Step 2: submit the completed loan application
If you like the quote you receive, you can proceed with the complete application, which also only takes a few minutes. The figure asks you:
- Photo ID: A driver’s license, passport, or other government-issued photo ID
- Bank account access
- Proof of insurance of owner or landlord insurance
- Proof of flood insurance if the home is located on a floodplain
Once you submit your completed application, Figure’s automated system verifies several key pieces of information.
First, they do a thorough credit investigation to confirm your credit score. Their system then checks your bank account transaction history for deposits online with your reported income. They also check public records to verify that you are listed as the owner of the property.
Most applicants receive a final approval in five minutes. In some cases, Figure may request additional documentation if its automated system cannot verify certain data.
Over the next few days, the Figure team reviews the automated data points and makes sure everything appears correct. They pay particular attention to automated property value verification to avoid over-borrowing.
Step 3: Virtual close
Figure uses an innovative “eNotary” system to manage settlement. Make a video call with eNotary, which verifies your identity using a combination of verification questions and matches your face to your photo ID.
From there, it’s simply a matter of electronically signing the loan documents – a note (or promise to pay) and a lien on the property. The eNotary then digitally certifies your electronically signed documents, making your loan official.
Step 4: Financing
Figure already has your bank details, so it electronically deposits the funds into your checking account. Wire transfers only take minutes or hours to transmit, not days, so like the rest of the loan process, it happens fast.
Advantages of the Figure line over home equity
Figure’s home equity line offers some unique advantages over traditional home equity lenders and HELOC programs.
1. Fixed interest rate
As a revolving line of credit, HELOCs historically charge variable rates that fluctuate along with market rates. Figure breaks the mold and offers a HELOC with a loan term of up to 30 years and a fixed interest rate.
Like most loans, the interest rate depends on your credit, income, the CLTV ratio, and the position of the lien; If you have a first mortgage, a HELOC has to take the position of a second lien.
Figure offers a lower interest rate if you connect your bank account to your loan account and set up automatic monthly payments.
These fixed interest rates are competitive, with annual percentage rates (APRs) ranging from 3% to 13.25%. Keep in mind that the APR includes the closing fees, not just the interest on the loan.
2. Transparent fee structure
With a traditional mortgage or HELOC, the lender charges thousands of dollars in fees, including origination fees (points), processing fees, underwriting fees, messaging fees, and “junk fees.”
Figure charges a one-time set-up fee, which you pay in advance when you apply for the loan. There are no other fees, not even late fees if you miss a payment. Figure does not charge a prepayment penalty if you pay off the loan early.
They don’t even require you to pay an appraisal. They use an intelligent algorithm to determine the value of your property through their own Automated Valuation Model. It’s one of the reasons they can close and fund so quickly.
In true “disruptor” fashion, Figure doesn’t require a traditional title search, which can save you thousands of dollars in title company fees.
3. Quick settlement
Even hard money loans are rarely paid off in five business days. The fact that Figure can finance consumer mortgage loans so quickly is almost miraculous.
Figure approves most applications automatically in five minutes. No human interaction is required; their algorithms analyse and approve your loan.
One way they can accomplish this feat is by skipping the traditional title search, which often takes weeks. Instead, they combine automation and human review of public records through a private public data aggregator called Datatree. Clearance is also done remotely from the comfort of your favourite home, office, or coffee shop.
4. Soft credit inquiry to pre-qualify
By pre-qualifying you for a custom interest rate and initial fee quote, Figure makes a smooth inquiry about your credit. That means your credit score doesn’t affect you. Most loan officers pressure you for permission to foreclose before offering you a firm quote on interest and fees.
Figure’s minimum credit score requirement is a reasonable 620. However, if your score is low, expect to pay a higher interest rate and fee with a lower CLTV.
If you decide to go ahead with your loan application, Figure conducts a thorough credit investigation.
5. Second homes and investment properties are allowed.
Few home equity lenders allow HELOCs against investment properties and second homes. But Figure does.
Just don’t expect the prices or CLTV to be the same. For second homes and investment properties, Figure charges more interest and origination fees, and you can expect a lower CLTV as well.
The figure also requires a higher minimum credit score of 680 when borrowing against investment property.
But that’s universal in the industry. Borrowers are less likely to default on their primary residence than a second home or investment property, and lenders price their loans based on this risk.
6. Revised draw limit
The main advantage of a HELOC is flexibility. You borrow money against your line of credit, pay it back, and then use it again when you need more money.
Historically, the figure only allowed borrowers to withdraw up to 20% of their original loan balance. If you borrowed $ 20,000, for example, the most you could withdraw from your line of credit was $ 4,000, even if you pay off your original loan in full.
But in late 2020, Figure revised its HELOC withdrawal limits to allow borrowers to repeatedly withdraw up to 100% of the original loan amount. That makes the Figure HELOC much more flexible and a true HELOC rather than a home equity loan with a cap option.
Disadvantages of the real home value line figure
The Figure program is not without its drawbacks, of course. Before applying for your Home Equity Line, make sure you understand these drawbacks.
1. Limitations of customer service
Automation is great for quick approval and funding, but what if you want to speak to a human being?
Unlike going through a traditional mortgage or HELOC lender, there is no series of phone calls with a Figure loan officer.
Figure offers live customer service, via online chat and a toll-free number, as well as email support. But you don’t have the option to interact face-to-face with Figure like you do with a local bank or credit union.
And if you have a burning question that you want answered right away, Figure may fall short.
I reached out to Figure through various channels to inquire about the details of their shows. By email, I was disappointed to wait several days with no response. I immediately found a human being through online chat, but he was unable to answer all my questions and referred me to email support.
That’s the double-edged sword of highly automated, lean Web-based businesses. They can move fast and keep prices competitive, but often at the expense of good, old-fashioned benefits like customer service.
If you have urgent questions, try calling Figure’s toll-free number if you don’t reach someone right away via live chat.
2. Short draw phase
The pull phase of the Figure Home Equity Line only lasts two to five years, depending on the term of the loan.
In contrast, many 30-year HELOCs offer a 10-year retirement phase before moving to a 20-year pay phase. The brief drawing phase of the figure is better than no flex, but it pales in comparison to a true HELOC.
3. Property limitations
Although Figure makes loans for second homes and investment properties, they place many other limitations on collateral properties.
They allow detached single-family homes, town-homes, condominiums, and planned unit developments (PUD).
They do not allow multi-family properties, even two- to four-unit properties classified as residential, manufactured homes, log homes, dirt or dome homes, cooperatives, mixed-use buildings, or properties with commercial zones.
In addition to HELOC, Figure also offers a traditional mortgage refinance.
Homeowners refinance their mortgage for many reasons: debt consolidation , a lower interest rate, or to withdraw equity in their home for other important expenses like home improvements, college tuition, or real estate purchases.
The main advantage of refinancing your mortgage is that it tends to be cheaper than other forms of borrowing because your primary residence secures the loan.
Figure brings the same optimisation to their refinance program that they offer with HELOC.
The application process is all online and you can complete it in minutes, including automated income and asset verification. You’ll get a rate quote almost instantly without a strong credit pull to lower your score.
Best of all, the loan can be paid off in 10 days, at lightning speed compared to conventional mortgage lenders, which often take a month or more to pay off. And the settlement is done electronically, just like with HELOC.
Figure offers up to 80% loan-to-value (LTV) for refinances solely to lower your interest rate, with a maximum loan amount of $ 1,500,000. For cash-out refinances, Figure allows up to 75% LTV on a loan amount of $ 1,000,000. Only single-family homes and town-homes qualify, and Figure does not issue mortgages on second homes or investment properties.
However, all refinances have some inherent drawbacks . Closing costs, including lender fees, title fees, and registration fees, typically add up to thousands of dollars.
Refinances calculate points based on the total loan amount, which is typically much higher in a refinance than in a HELOC because you have to pay off your current mortgage as part of a new loan.
They also involve extending your borrowing horizon and restarting the amortisation program from scratch, which means re-entering the initial high-interest phase of a home loan.
Personal loans (formerly student loan refinancing)
Figure also offers personal loans unsecured . They previously offered a narrower scope of personal loans, limited to student loan refinances to consolidate or reduce interest on your student loan debt.
As with its other products, Figure handles the application online, verifying your assets and income by linking them to your financial accounts. They don’t charge origination fees, which helps keep loan costs low. If you pay off the loan early, there is no prepayment penalty.
An attractive feature is that Figure offers a discount on your interest rate if you accept automatic monthly payments. Link your bank account to Figure, and they automatically deduct your payment each month. Borrowers can cut 0.25% of their interest rate by accepting the automatic payment.
Figure offers loans between $ 5,000 and $ 50,000. You can choose between a three or five year loan term when you apply.
Most recently, Figure launched Figure Pay , a payment app that works in a similar way to PayPal.
You can send money to friends or family, shop online, and access loans to buy now and pay later. They have also negotiated rewards with hundreds of retailers to incentive payment through their app.
To withdraw physical cash, you can access more than 55,000 ATMs nationwide at no charge.
Businesses can sign up to receive payments through Figure Pay and earn referral fees when they refer other businesses. Figure boasts that businesses can save up to 80% on transaction fees by using Figure Pay instead of traditional merchant services.
If you want the best of a home equity loan and HELOC, line mortgage guarantee Figure could be the option perfect. It’s fast, transparent, and more flexible than a traditional home equity loan.
Just don’t expect in-person customer service or a paddle for the kids. Your loan will be automated for the most part with minimal human interaction. Call it the price of progress, or at least the price of speed and affordability.