Normally, credit unions don’t give mortgages to people with high debt-to-income ratios, small down payments, and short job tenure. But then “doctor loans” allowed leverage on high income and job security afforded medical professionals.
But physicians aren’t the only professional group that now have assets directly linked to high ability to repay despite a lack of traditional markers of creditworthiness.
Nesting is a fintech that makes a strong case to give a similar treatment to tech employees and startup stakeholders. Here’s how it works…
The Case for Tech Employees and Startup Stakeholders
First, let’s discuss the financial picture of tech employees—especially those looking for their first house. Many of these tech employees have high college debt and may be relatively new to their field. They often live in expensive areas with a high cost of living.
Yet their salaries also typically start north of 6 figures and climb quickly. Moreover, they receive stock options, giving them a strong portfolio of publicly traded assets.
These are the makings of high net worth and the long-term ability to repay, but not the makings of a down payment. After all, a down payment would require asset liquidation, taxable events, and other complexity. These tech borrowers would rather let assets (like stock and cash) continue to appreciate in value instead of driving it into a down payment.
Similarly, startup stakeholders don’t just get VC funding and the potential to command a high income from success (or a successful exit), but they also get equity. Often, that equity turns into real value after the startup matures. Just at CU 2.0 alone, around a dozen of the fintechs we’ve worked with have been acquired in the last ~5 years. It’s very common!
Furthermore, private company employment is up 40% in the last 20 years. These talented leaders are exclusively executive-level players with high-demand skill sets. Even if a startup fails—and yes, many do—those stakeholders will find executive-level roles elsewhere (with commensurate paychecks and equity opportunities).
To be clear, there’s no exact parallel between doctors and tech employees and startup executives. Malpractice suits are less common than startup failures. Conversely, tech employees typically have longer career tenure, larger down payments, and far lower DTI. So, despite being more prone to employer changes, their borrower fundamentals are sound.
Where Nesting Fits In
Nesting is a modern mortgage program that uses all the first-time home buyer’s household data and assets, such as public stock, to lower risk and improve pricing. Thus, they help tech employees and startup executives qualify for better mortgage loans.
By taking private assets and earning potential into account, Nesting paints a more accurate and favorable picture of first-time home borrowers. And because Nesting looks at public (and potentially private) assets, they can give credit for equity without forcing employees to sell that equity. Consequently, borrowers can put less down and pay lower monthly payments on homes.
Nesting delivers better credit risk mortgages with high value borrowers—borrowers who can become core members of a credit union. 172 million Americans now own stock, and the top 10% hold an average of $793,000 in their portfolio. These portfolios can be liquidated to make monthly payments, but otherwise, they continue to grow.
It may seem like this mortgage program would limit qualified borrowers to urban tech hubs, but the increase in remote work means that qualified borrowers are more dispersed than ever.
Additional Resources
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