A growing number of aspiring homeowners are turning to crowdfunding platforms as a way of raising funds to cover their down payments.
Crowdfunding platforms such as HomeFundMe and Feather the Nest have recently emerged, catering specifically for the home down payment market, Realtor.com reports. The idea is that wannabe homeowners can use the platforms to raise the funds they need to cover the down payment needed to purchase a home. Some platforms, including one called HoneyFund, also allow down payment contributions to be awarded as a “gift”.
“The number one challenge that we hear from millennials in terms of their ability to buy a home is the down payment,” Jonathan Lawless, vice president of customer solutions for Fannie Mae, told realtor.com. “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.”
Aspiring homeowners who’re already prequalified for a mortgage can use crowdfunding sites to create a personal page, or plea, asking for funds towards their down payment.
"[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.
The idea is proving to be a big hit with government too, as HomeFundMe is already being backed by mortgage financing giants Fannie Mae and Freddie Mac.
Lenders do have restrictions in place on how down payment assistance is handled. In most cases, lenders will want to see a letter from whoever is providing financial assistance stating that the money is a gift and not a loan. However, one crowdfunding platform called HoneyFund is helping borrowers to bypass that by allowing its users to contribute money as a “gift”, with no paperwork needed.
HomeFundMe does something similar, allowing up to $7,500 to be gifted towards a single campaign without any documentation needed. The site also encourages responsible lending too, offering to award buyers $2 for every $1 they raise up to a total of $1,000, or one percent of their home’s purchase price, on the condition that the buyer undergoes counseling first. In addition, the buyer must agree to obtain their mortgage through CMG Financial, which is the parent company of HomeFundMe.
Not everyone is so keen on the idea of crowdfunding however, as some experts warn there is often a very good reason why some buyers cannot save for a down payment.
"If somebody is not able to save for their own down payment, it might be because they are stretched financially,” Lawless said. “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."