SoftBank Group Corp.

9984 -3.45%

, which recently invested $500 million in Better as part of a deal making sprint, could put in an additional $1.3 billion through what is known as a PIPE, or private investment in public equity, a common feature of SPAC mergers. (Better could place $400 million of that with other investors.) The remaining $200 million of the $1.5 billion PIPE is to come from Aurora, whose sponsor is the investment vehicle of Icelandic billionaire

Thor Bjorgolfsson.

Better would raise nearly $800 million in new capital in the deal, with an additional roughly $950 million in proceeds going to cash out existing shareholders. As part of the transaction, customers who previously took out a mortgage from Better would be able to buy stock in the company through a direct share-purchase program. Better’s co-founder and chief executive,

Vishal Garg,

wouldn’t sell shares in the offering.

The rush among city dwellers to buy bigger homes in the suburbs during the pandemic, plus a surge in mortgage refinancing at historically low interest rates, contributed to a near-quintupling of Better’s loan volume last year, to $24 billion. The company’s management expects the new funds to help accelerate its move into related services, including home and title insurance.

There has been a surge in deal activity involving SPACs, which raise money in an initial public offering and then look for a business to combine with, as private companies seek a more streamlined route to the public markets than a traditional IPO. Recently, however, there have been signs of a slowdown as the Securities and Exchange Commission and other regulators signal that they are planning to step up scrutiny of SPACs. A senior official at the SEC recently warned SPACs against making misleading statements about their growth projections.

Founded in New York in 2014, Better provides home loans for consumers through its website and partner banks, such as

Ally Financial Inc.

ALLY -1.92%

Software the company built handles tasks traditionally done by mortgage brokers working on commission, and a matching engine Better developed places home loans it makes with more than 30 big banks and institutional investors, enabling it to keep little risk on its books. In 2020, Better generated $185 million in net income on $876 million of revenue.

In an investor presentation on Tuesday, Better predicted its fast growth would continue. The company forecast that it would generate $1 billion of annual profit on $5.1 billion of revenue by 2023. It also projected that it would extend $57 billion of mortgages this year and $181 billion in 2023, which Better said would give it a market share of 5.6%.

Better previously raised money from investors including

Goldman Sachs Group Inc.,

GS -1.27%

Kleiner Perkins Caufield & Byers, Healthcare of Ontario Pension Plan and 9Yards Capital. SoftBank’s purchase of shares from existing investors earlier this year valued the company at roughly $6 billion.

Mr. Garg said that one reason he wanted SoftBank as an investor was for the opportunity to make Better mortgages available to employees and customers of other companies in the Japanese technology giant’s portfolio. He added that the company chose to merge with a SPAC because it offered a better alignment of interests with investors compared with a traditional IPO.

Last year, brisk homebuying and refinancing activity set the mortgage market up for one of its best years ever. That sparked a wave of IPOs and deal making in the sector, with companies such as Quicken Loans parent

Rocket

RKT -2.76%

Cos. going public and United Wholesale Mortgage choosing to merge with a blank-check firm.

In recent months, rising mortgage rates have cooled some loan demand and prompted price wars across the industry, crimping lenders’ profits.

Write to Maureen Farrell at maureen.farrell@wsj.com and Peter Rudegeair at Peter.Rudegeair@wsj.com