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For the past two years appraisal gap clauses have been de rigueur in many markets, much to the disdain of frustrated homebuyers. Mortgage startup Tomo feels, however, that it has a solution. On Wednesday, the firm launched Tomo Appraisal Coverage.
Tomo says its appraisal coverage product protects home buyers from having to bring more cash to the close when appraisals come in low, with the same APR, cash-to-close and monthly payment guaranteed.
Buyers can qualify for Tomo appraisal coverage by having an underwritten pre-approval from Tomo Mortgage before making the offer, a minimum of a 10% down payment, and are working with a Tomo partner agent who runs the property address through a verification process with Tomo before placing the offer.
The appraisal coverage product is only available on conforming loans, and it will not apply to properties being sold following foreclosures, or if the property’s appraisal returns any health and safety issues, or if the property condition is rated by the appraiser as C5 or C6 under Fannie Mae’s property condition ratings. In addition, homebuyers must be occupying the home as a primary residence, and therefore it is not available on multi-family properties.
The product is free for eligible Tomo mortgage transactions and is launching on September 8, 2022, but underwritten pre-approvals are now available.
Founded in 2020 by former Zillow executives Greg Schwartz and Carey Armstrong, the fintech focuses on the $1.6 trillion purchase mortgage sector. Last summer, the company launched the platform after raising $70 million in seed capital and achieving ‘unicorn’ status.
In 2022, the fintech announced raising $40 million in a Series A round led by SVB Capital, which more than doubles the company’s valuation to $640 million.
Tomo, however, is not immune to the volatility in the markets. The digital mortgage lender laid off nearly one-third of its workforce in late May.
