What sounds better, giving the happy couple a $200 toaster oven, or chipping in for their down payment on a house?
Some hopeful buyers are turning to crowdfunding because they can’t save enough for a down payment. CMG Financial, which originated in Pleasanton, CA, has launched an online platform specifically for crowdfunding for a down, called HomeFundMe.
The crowdfunding platform doesn’t offer a return on investment the way most do. Yet it’s risky, because buyers won’t have “skin in the game.” According to Fannie Mae’s Jonathan Lawless, Fannie Mae will watch the results of this “pilot project” closely.
“We’re trying to test and learn a variety of solutions because the preferences for today’s homebuyers 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,” Lawless said to CNBC.
REALTOR®Mag noted that “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’s founder, Christopher George, said that the money through the HomeFundMe platform is considered a gift, and many of the gifts are likely smaller amounts—about what one might pay for a wedding gift, for instance.
George told CNBC that unlike a loan from family or friends, gifts are not required to be repaid, so they don’t require all that detailed documentation that typically goes along with money received for a down payment. Plus, it’s tax deductible.
While many see the benefit of getting help with a down payment, some in the industry fear that certain people who, say, need help with the entire down payment.
“If unexpected expenses come up for the home owner, and they always do–a leaky roof, the septic clogs, whatever—those homeowners with no money and no savings might end up missing mortgage payments to fix problems, and wind up going into default on their loan.”
As an incentive for encouraging prospective homeowners to attend credit education courses and counseling,
Borrowers can also receive grants of up to $2,500 if they complete free credit education and counseling classes.
“Folks that go to counseling tend to be more informed, and they also tend to be better borrowers,” George said. “We’ve looked at this as advertising dollars and … think this promotes homeownership, we think it’s something that we would otherwise spend either through the internet or through social media. We’ve put our money here where we think it has its best use.”
Added the Fannie Mae spokesman: “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.”