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Mortgage lenders can now integrate the Knock Bridge Loan into their pre-qualification process, giving loan officers the ability to let homebuyers know if tapping the equity in their existing home could help them buy before they sell.
Knock said Thursday its biggest mortgage partner, NFM Lending, is the first to take advantage of its new application program interface (API) by integrating the Knock Bridge Loan estimate into its loan officers’ workflow through an Encompass plugin.
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Sean Black
“In today’s limited inventory, high interest rate environment, the biggest value a service provider can offer is helping homeowners get unstuck,” Knock co-Founder and CEO Sean Black said in a statement. “The Knock Bridge Loan solves this problem by allowing homeowners to tap into the equity in their current home before they sell. They become more competitive buyers and can flip the process to move on their own terms.”
In the past year Knock, a pioneering power buyer, has tightened its focus to providing bridge loans through partner lender and real estate agent channels. As elevated mortgage rates cut into its business, Knock laid off nearly half its workforce in 2022 in conjunction with a $220 million debt and equity funding round.
Last year, Knock opened its platform to outside lenders, allowing homebuyers to use their lender of choice to provide a first mortgage to finance their purchases.
Used in conjunction with a first mortgage, the Knock Bridge Loan lets homebuyers make non-contingent offers and removes their current mortgage payments from the debt-to-income calculation when qualifying for their next loan. It can also be used to cover expenses like down payments and repairs.
Bob Tyson
“Over the past 18 months, Knock has become our go-to solution for helping homeowners compete and win in today’s housing market,” NFM President and COO Bob Tyson said in a statement. “With so many of our lending officers turning to the Knock Bridge Loan as a financing solution, this integration will streamline the approval process. More importantly, it gives them another tool to differentiate themselves and provide more personalized and tailored service to their clients.”
Linthicum, Maryland-based NFM is licensed in every state but New York, sponsoring 583 mortgage loan originators working out of 105 branch offices, according to records maintained by the Nationwide Multistate Licensing System.
In the 75 markets in 21 states where the Knock Bridge Loan is available, borrowers pay Knock a fixed fee equal to 2.25 percent of their existing home’s estimated list price, plus closing costs of about $1,850, depending on the loan amount. There are no interest charges on the bridge loan for 6 months, and Knock guarantees it will purchase borrowers’ homes if they haven’t sold by that time.
While Knock no longer offers first mortgages, it sees its partner channel strategy as more profitable and scalable. Lenders refer borrowers and agents to Knock, with agents earning full commissions from clients when they buy and sell.
One rival, Calque, has a similar business model, partnering with lenders and agents to help homeowners who want to leverage their equity for their next move. Calque provides a guaranteed backup contract to homebuyers who are selling, while lender partners provide both the first mortgage and bridge loan.
This year, Calque has partnered with some big names including C2 Financial and Cornerstone First Mortgage, as well as smaller players like APEX Mortgage Group (Atlanta), Aslan Home Lending Corp. (Denver), Augusta Mortgage Company (Augusta, Georgia), Haus Capital Corp. (Rochester, New York), HMA Mortgage (Pittsburgh, Pennsylvania), Sammamish Mortgage (Bellevue, Washington) and Waymaker Mortgage Company (Austin, Texas).
Knock continues to raise funds from investors
Knock announced in February that it had raised $10 million in funding from investors including Second Century Ventures and Foundry Venture Capital, and more than $125 million in new revolving lines of credit to fund Knock Bridge Loans. Knock said it was also seeking to raise an additional $5 million from individuals from the crowdfunding platform Wefunder.
In a pitch to investors in April, Knock put the total addressable market for its services at $27.3 billion, with an estimated 64 percent of mortgages taken out by homebuyers who are also selling and Knock earning an average of $11,300 in revenue per customer.
“Knock has been growing strongly and steadily all year through macro headwinds and 7+ percent interest rates,” the company said in an April 23 investor update, with the first phase of lender integration exceeding expectations.
With phase two integration into NFM Lending’s loan operating system, “Knock will programmatically pre-qualify every NFM customer, alert loan officers within their workflow and make it easy for them to send to their customers,” investors were informed.
In a May 9 Instagram post, Knock announced its initial Wefunder round had ended, but that the company was considering a second round “due to high demand.”
In a regulatory filing the next day, Knock said it had raised $180,000 through crowdfunding in April and was looking to raise an additional $50,000 to $4.8 million by April 30, 2025.
Knock disclosed in the May 10 filing that it racked up a $24.8 million 2023 net loss as revenue declined by 39 percent, to $9.3 million. That was an improvement from 2022, when Knock posted a $30.4 million net loss.
Over the past three years, Knock said its financing has consisted of $23.6 million in debt, $39.3 million in equity, and $39.7 million in convertible notes.
“As we realize increases from our lending partner integrations and continued rollouts, our average revenue for the next 6 months is expected to increase almost 3x to over $1.2 million per month,” company executives informed prospective investors. With an average operating cash burn of $170,000 a month, “We are not yet profitable, but we expect to be EBITDA positive by June 2024 and operating cash flow positive by September 2024.”
(EBITDA is adjusted earnings before interest, taxes, depreciation and amortization).
But Knock executives warn they’ll need $4 million in additional equity funding to meet that goal, and an additional $7 million “to maintain sustainable free cash flow … through the end of 2025.”
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