Some desperate home buyers who aren’t able to save enough for a down payment are turning to crowdfunding.
And mortgage lenders are making it easier for buyers to do so. CMG Financial, a mortgage provider, launched
HomeFundMe, an online platform to allow borrowers to crowdfund the down payment of a home purchase without fees. The crowdfunding platform also has the backing of mortgage finance giants Fannie Mae and Freddie Mac.
Saving for the down payment has remained a big obstacle for first-time buyers.
High levels of student loan debt, costly rent, and underemployment during the recession has zapped their savings.
Borrowers can receive down payment assistance from family members, employers, and acquaintances, but lenders have required significant documentation about the financial gifts. Lenders want to make sure borrowers are receiving the down payment as a gift and are not required to repay the funds. Lenders also want to ensure that borrowers are still able to comfortably make the monthly mortgage payments.
CMG Financial’s crowdfunding platform does not offer a return on investment like most business crowdfunding platforms do. The money donated is considered a gift. Christopher George, CEO of CMG Financial and vice chairman of the Mortgage Bankers Association, says that many of the gifts will likely be smaller, in between $50 to $250. The platform can be added to wedding and baby registries.
“You’re going to spend $250 on a coffee-making machine? If that $250 goes to a down payment of your home, at the very least, I improve your quality of life and the second thing I do is I give you some tax deductibility,” George told CNBC.
The lender is also offering up to $2,500 in extra funding for potential homeowners who attend free credit education courses and counseling. CMG Financial will match donations at $2 for every $1 raised (up to $2,500).
“What we’re doing today is we’re trying to test and learn a variety of solutions because the preferences for today’s home buyers have changed significantly, and there is no silver bullet to solving a problem that’s as hard as how do you find a down payment,” says Jonathan Lawless of Fannie Mae. “What we prefer to do is source ideas from all sorts of different places. Our customers are a major one, lenders who are dealing every day with people trying to buy homes, and instead of trying to take those ideas and spend three years trying to roll out a major change, we’d rather test and learn.”
But some in the housing industry are cautious about home buyers who may use such platforms to earn their entire down payment from gifts and donations.
“I have qualms with anybody getting a loan who can’t put some down payment down themselves,” says Rick Sharga, executive vice president at Ten-X, an online real estate sales and auction company. “Those types of borrowers typically are one water heater away from missing their payments, going into default, maybe losing the house to foreclosure.”
That said, Sharga says he isn’t entirely against using crowdfunding for down payments.
“If crowdfunding is a way to augment a down payment or to make a bigger down payment than you could make yourself, because then it will keep your monthly payments down or it will help you qualify for a loan that you might not have gotten without the crowdfunding, I could see the benefits of that,” he told CNBC.
Source: “A New Way to Buy a Home – With No Money of Your Own,” CNBC (Oct. 5, 2017)
