More aspiring home buyers are increasingly turning to crowdfunding to drum up money for a down payment.
Several new crowdfunding platforms have debuted, such as HomeFundMe and Feather the Nest, to help potential home buyers raise funds to purchase a home or make home repairs. Online registries like HoneyFund include the option of gifting a down payment contribution.
“The number one challenge that we hear from millennials in terms of their ability to buy a home is the down payment,” says Jonathan Lawless, vice president of customer solutions for Fannie Mae. “Crowdsourcing is an interesting new way that a person can generate a down payment, one made possible by technology. … We think there is a great future for it.”
A consumer who is prequalified for a mortgage could create a personal page on a crowdfunding site. They can share their journey toward homeownership and then share the pages with family and friends.
"[Many] people find they can afford [mortgage] payments, but not the down payment to own a home," Christopher George, CEO of CMG Financial, a mortgage banking firm that launched HomeFundMe, told realtor.com®. HomeFundMe is the first such site to be backed by mortgage financing giants Fannie Mae and Freddie Mac.
Mortgage lenders do have restrictions on down payments being gifted. They usually require a letter from the giver that states the money is a gift, not a loan. But an online fundraising platform can allow buyers to bypass that, realtor.com® reports.
For example, with HomeFundMe, a gifter can give up to $7,500 to a campaign without any documentation required. Further, HomeFundMe doesn’t charge fees to use its platform. The firm will also award buyers $2 for every $1 they raise, up to $1,000 or up to 1 percent of the purchase price, if the buyer undergoes counseling beforehand. In exchange, the buyer must agree to get a mortgage through HomeFundMe’s parent company, CMG Financial. They also have to agree to close on a home within a year of accepting their first monetary gift.
But some financial experts warn caution when using crowdfunding sites to raise money for a home.
"If somebody is not able to save for their own down payment, it might be because they are stretched financially,” says Lawless. “But it [also] might be that they are bad at saving. The ability to generate savings is a critical aspect of being a responsible homeowner."
Source: “Should Buyers Crowdfund Their Way Into Homeownership?” realtor.com® (May 11, 2018)
