For decades, very little has changed when it comes to how homeowners borrow money. So it’s impressive to find a tech-oriented lender that’s truly disrupting the home loan industry.
Founded in 2018, Figure uses blockchain technology and artificial intelligence to approve home loans in minutes and fund them in five days. Anyone who’s ever borrowed a mortgage or home equity line of credit (HELOC) knows that the traditional loan-closing process takes much longer than that – usually 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 home lenders.
Figure Home Equity Line
Before explaining what Figure offers, it’s worth pausing to summarize the difference between traditional home equity loans versus HELOCs. A home equity loan is a mortgage (usually a second mortgage) against your existing home, with a fixed loan amount and fixed term. In contrast, a HELOC is a rotating 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 includes some unusual limitations on credit line draws and isn’t as flexible as a typical HELOC. Instead of being able to draw up to the credit limit repeatedly, borrowers can only draw a maximum of 20% of the original loan amount (more on that shortly).
So while it’s nominally a HELOC, Figure’s Home Equity Line operates more like a mortgage with a flexible option to pull a little extra money if needed. It enables you to take out a loan ranging from $15,000 to $150,000 against the equity in your home. Figure allows a maximum combined loan-to-value ratio (CLTV) of 95%, which is high by industry standards.
Figure’s loan terms are five, 10, 15, or 30 years, which you pay back on a fixed payment schedule. There’s an initial draw phase between two and five years, depending on your loan term. During this time, you can draw extra money from Figure if you wish. Once the draw phase ends, you can no longer borrow additional money, and the loan switches to a locked repayment phase that works like a standard mortgage.
Figure’s Home Equity Line is available in most states plus the District of Columbia, and the program is expanding each year. For a list of available states, see the footer at the bottom of Figure’s site.
Figure’s application process is fast and efficient. Here’s what you can expect when applying for a Home Equity Line from Figure.
Step 1: Complete the Pre-Qualification Form
To begin the process, fill out Figure’s online pre-qualification form. They only ask the bare minimum to make sure you qualify:
- Email address
- Date of birth
- Collateral property address and type of property
- Purpose of the loan
- Household income
Next, Figure performs a soft credit check. They require a minimum score of 600. If you qualify, they quote you an origination fee, interest rate, and maximum loan amount.
Step 2: Submit the Full Loan Application
If you like the quote you receive, you can proceed with the complete application, which also only takes a few minutes. Figure asks you for:
- Photo ID (driver’s license, passport, or other government-issued photo ID)
- Bank account access
- Proof of homeowners insurance or landlord insurance
- Proof of flood insurance (if the home is located on a flood plain)
Once you submit the full application, Figure’s automated system verifies several key pieces of data. First, they run a hard credit inquiry to confirm your credit score. Their system then checks your bank account’s transaction history for deposits in line with your stated income. They also check public records to verify that you’re listed as the property owner.
Most applicants receive a final approval within five minutes. In some cases, Figure may request additional documentation if their automated system can’t verify certain data.
Over the next few days, Figure’s human team reviews the automated data points and makes sure everything looks correct. They pay particular attention to verifying the automated property value to avoid over-lending.
Step 3: Virtual Closing
Figure uses an innovative “eNotary” system for handling settlement. You hop on a video call with the eNotary, who verifies your identity using a combination of verification questions and comparing your face to your photo ID.
From there, it’s merely a matter of e-signing the loan documents: a note (or promise to pay) and a lien against the property. The eNotary then digitally notarizes your e-signed documents, and just like that, your loan is official.
Step 4: Funding
Figure already has your banking details, so they deposit the funds electronically in 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 Home Equity Line
Figure’s Home Equity Line offers some unique advantages over traditional home equity lenders and HELOC programs.
1. Fixed Interest Rate
As a rotating 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 lien position (if you have a first mortgage, a HELOC has to take second lien position). Figure offers a lower interest rate if you connect your bank account to your loan account and set up automated monthly payments.
These fixed interest rates are competitive, with annual percentage rates (APRs) ranging from 4.99% to 13.25%. Keep in mind that APR includes closing fees, not just 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, courier fees, and “junk fees.”
Figure charges one single origination fee, which you pay upfront when you take out the loan. There are no other fees, not even late payment 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 for an appraisal. They use an intelligent algorithm to determine your property’s value through their own Automated Valuation Model (AVM). It’s one reason they can close and fund so quickly.
3. Fast Settlement
Even hard money loans rarely settle within five business days. The fact that Figure can fund consumer home loans that rapidly is almost miraculous.
Figure approves most applications automatically within five minutes. No human interaction is required; their algorithms analyze and approve your loan.
One way they can achieve 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 aggregator of public data called Datatree. The settlement is also done remotely from the comfort of your home, office, or favorite coffee shop.
4. Soft Credit Inquiry to Pre-Qualify
When pre-qualifying you for a personalized interest rate and origination fee quote, Figure makes a soft inquiry on your credit. That means there’s no ding to your credit score. Most loan officers press you for permission to run your credit before offering a firm quote on interest and fees.
Figure’s minimum credit score requirement is a reasonable 600. If your score is low, however, expect to pay a higher interest rate and fee with a lower CLTV. If you decide to move forward with your loan application, Figure runs a hard credit inquiry.
5. Second Homes & Investment Properties Allowed
Few home equity lenders allow HELOCs against investment properties and second homes. But Figure does.
Just don’t expect the pricing or CLTV to be the same. For second homes and investment properties, Figure charges more in interest and origination fees, and you can expect a lower CLTV as well.
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.
Disadvantages of the Figure Home Equity Line
Figure’s program is not without its downsides, of course. Before you apply for their Home Equity Line, make sure you understand these drawbacks.
1. Customer Service Limitations
Automation is great for fast approval and funding, but what if you want to speak with a human being?
Unlike going through a traditional mortgage or HELOC lender, there’s no series of phone calls with a Figure loan officer. Figure does offer live customer service, through both online chat and an 800-number, as well as email support. But you don’t have the option of face-to-face interactions with Figure like you do with a bank. And if you have a burning question you want answered immediately, Figure may fall short.
I contacted Figure through several channels to inquire about the details of their programs. Over email, I was disappointed to wait several days with no response. I got a human being right away over online chat, but he couldn’t answer all of my questions and referred me back to email support.
That’s the double-edged sword with lean, heavily automated Web-based companies. They can move fast and keep prices competitive, but often at the expense of good, old-fashioned perks such as customer service. For urgent questions, try calling Figure’s 800-number if you don’t reach someone right away by live chat.
2. Low Draw Limit
The main advantage of a HELOC is flexibility. You borrow money against your line of credit, pay it back, and then when you need more money, you draw on it again.
Figure only allows borrowers to draw up to 20% of their original loan balance. If you borrow $20,000, for example, the most you can ever draw against your credit line is $4,000, even if you pay off your original loan entirely. That makes Figure’s loan less a rotating line of credit than a mortgage with an extension option.
3. Short Draw Phase
Compounding these limitations, the draw phase of Figure’s Home Equity Line only lasts two to five years, depending on the loan term.
In contrast, many 30-year HELOCs offer a 10-year draw phase before rolling over to a 20-year repayment phase. Figure’s short draw phase compounds the heavy restrictions on draws to weaken their product’s flexibility further. It’s better than no flexibility at all but pales in comparison to a true HELOC.
4. Property Limitations
While Figure does lend against second homes and investment properties, they impose plenty of other limitations on collateral property.
They allow detached single-family homes, townhomes, condominiums, and planned unit developments (PUDs). They do not allow multifamily properties (even two- to four-unit properties classified as residential), manufactured homes, log homes, earth or dome homes, co-ops, mixed-use buildings, or commercially zoned properties.
In addition to a HELOC, Figure also offers a traditional mortgage refinance.
Homeowners refinance their mortgage for many reasons: debt consolidation, a lower interest rate, or to pull equity out of their home for other significant 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 since your primary residence secures the loan.
Figure brings the same streamlining to their refinance program that they offer with HELOCs. The application process is all online, and you can complete it in minutes, including automated verification of income and assets. You’ll get a rate quote nearly instantaneously without a hard credit pull to ding your score.
Best of all, the loan can settle within 10 days – lightning fast compared to conventional mortgage lenders, who often take a month or longer to settle. And settlement takes place electronically, just as with the HELOC.
Figure offers up to 80% loan-to-value ratio and allows a maximum cash withdrawal of $500,000. Only single-family homes and townhouses qualify.
All refinances come with some inherent drawbacks, however. Closing costs – including lender fees, title fees, and recording fees – usually total thousands of dollars. Refinances calculate points based on the entire loan amount, which is typically far higher in a refinance than a HELOC since you have to pay off your current mortgage as part of a new loan. They also involve extending your debt horizon and restarting the amortization schedule from scratch, which means reentering the high-interest beginning phase of a mortgage loan.
Student Loan Refinance
Finally, Figure also offers a student loan refinance to consolidate or lower the interest on your student loan debt.
As with their other products, Figure handles the application online, verifying your assets and income by linking to your financial accounts. They don’t charge origination fees, which helps keep borrowing costs low. If you pay the loan off early, there’s no prepayment penalty.
One attractive feature is that Figure offers a discount on your interest rate if you agree to automated monthly payments. You link your bank account with Figure, and they deduct your payment automatically each month. Borrowers can shave 0.25% off their interest rate by agreeing to auto-pay.
Figure offers loans between $5,000 and $250,000, and loan terms between five and 20 years. And if you run into trouble making your payments on time, Figure lets you delay making payments with up to 12 months of forbearance.
If you want a home equity loan with some added flexibility, Figure’s Home Equity Line could be a perfect fit. It’s fast, transparent, and offers more flexibility than a traditional home equity loan. However, it offers less flexibility than a traditional HELOC.
Just don’t expect in-person customer service or a lollipop for the kids. Your loan will be mostly automated, with minimal human interaction. Call it the price of progress, or at least the price of speed and affordability.
Have you ever used Figure? What did you think about the process and product?