In the past, most couples hoping to get married would start up a wedding registry but now so many have lived together, sometimes for many years, that they typically own most of the stuff you’d find on a wedding registry. However, actually owning a home is a different matter and is why crowdfunding a down payment is becoming a more popular alternative to a wedding registry.
While crowdfunding a down payment may not raise the entire amount, an article in CityLab.com points out that it can provide a valuable boost to savings, bringing the dream of homeownership that much closer. It sounds like a good solution, especially as the article highlights the problem faced by many younger people living in areas where the median home value can be $1 million or more. Crowdfunding platforms such as Honeyfund, Feather the Nest, and Homefundit are all being used by would-be homeowners to build their nest egg.
Crowdfunding site Feather the Nest was started in 2013, originally with the aim of helping users crowdfund projects such as home renovation. However, it wasn’t long before many of the campaigns were for down payments. This platform isn’t associated with a particular mortgage lender, giving site users the freedom to find the mortgage themselves. The platform takes 5% of every donation. Other platforms such as Honeyfund are free, but they still charge a processing fee of nearly 3%, while HomeFundIt doesn’t charge transaction fees.
Because the funds are trackable, risks for crowd funders are low, but some platforms such as Home Fund It is backed by a mortgage broker. This means anyone raising funds through this platform must obtain their mortgage through this company and cannot shop around for other lenders. Also, they must be preapproved before they can launch their campaign. Once approved, homebuyers have a year to raise the funds before purchasing a home. If they fail to raise enough funds and cannot put down 20%, the buyers may need private mortgage insurance. On certain platforms contributors can give conditional gifts toward the down payment and which are returned if the goal isn’t reached. For other platforms that are wedding registry focused, couples receive every penny.
It seems like an excellent idea, but apparently, it’s a solution that can raise problems when it comes to getting a mortgage. People who choose this method to crowdfund a down payment can appear as a higher risk to lenders, as after all, they have failed to save up for a down payment on their own. The article recommends that potential homeowners should try to build their own savings, only using these platforms to get them to their ultimate goal.